Aldermen take aim at 'payday loan' establishments
St. Louis aldermen want to place stricter regulations on “payday loan” establishments, part of a broader movement to combat institutions that provide short-term cash to primarily low-income individuals.
Payday loan companies tend to provide small, short-term loans to people. Some critics of the institutions say that they place high interest rates on the loans, which send low-income people who use the service into a cycle of debt.
Alderman Cara Spencer is sponsoring two bills that would place some local regulations on these businesses. The first would require any financial institution defined as a “short-term loan establishment” to, among other things, post information about its interest rates – including how such rates would translate into Annual Percentage Rate. It would also prompt those entities to provide information about alternative financial institutions.
“We do have quite a few organizations that offer microloans,” said Spencer, pointing to groups like Justine Petersen. “We have other organizations like that. But they don’t have a big marketing budget. So this will allow them to get the word out, so to speak, in some good targeted information about alternatives to payday loans.”
The second bill, which would need voter approval, would authorize an annual fee of $10,000 to permit most “short-term loan establishments.” Spencer said that money could help pay for building inspectors who make sure payday loan stores are following city ordinances – including one requiring such entities be a mile apart from one another.
“We’re making sure that we’re just following our own law, so they’re not just piled up on top of each other in commercial corridors that serve the low-income communities,” Spencer said. “And then secondly, we’re making sure that the consumer is informed through those provisions I talked about earlier with the translated APR. But also, they get information about what other alternatives are out there.”
When Spencer’s bills were heard at the Board of Aldermen’s Public Safety Committee on Thursday, they were backed by several aldermen – and city treasurer Tishaura Jones. Under the bill, Jones' office would have to approve the guide.
Jones asked if those who borrow from these place are "generally irresponsible people who lack fiscal discipline? No. They are largely working class people who lack access to credit. And if a middle class person has an unexpected car repair or medical bill, they can simply use their credit card or tap into their savings. Working class people with poor credit can have their lives uprooted by an expected bill.
“While the Board of Aldermen may not have the legal authority to outright ban payday lenders, reasonable regulations such as [Spencer’s bills] are more than need considering the toll this industry takes on some of our city’s most vulnerable residents,” Jones added.
But Spencer's bills also received some criticism.
Robert Zeitler is the CEO of PH Financial Services, which has operated several hundred short-term loan institutions in 17 states. Like other skeptics of Spencer’s bill, he questioned whether banks or credit unions could step up if payday lenders disappear.
“If you have a breakdown, there are places that you can go and get money that is 10 times what I charge,” Zeitler said. “There needs to be more communication with the other side. And yet, the other night I was speaking at the Archdiocese. And I said ‘look, is there any middle ground where we could talk?’ [Their] exact answer was no. So if all you’re going to do is throw rocks, expect spears.”
David Sweeney, an attorney for Lathrop & Gage who used to be the Board of Aldermen’s chief legal counsel, questioned why Spencer’s bill imposed a $10,000 fee.
“I see no justification for it,” Sweeney said. “I think if you start just picking and choosing numbers because you don’t like that industry or you don’t like certain parts are and you’re frustrated with it, it sets a really bad tone going forward.”
Asked about why a $10,000 permit fee was necessary, Spencer replied that the city has to be able to pay for the expenses to inspect the payday loan establishments. She added $10,000 should be “a drop in the bucket” for the institutions.
“This industry is making handy profits targeting low-income communities. And so we really need to crack down as much as we can at the city level,” Spencer said. “Of course, we’re pre-empted by the state from addressing the rates or rollovers or things of that nature. But systemic poverty is a serious issue in the city of St. Louis. And we really do need to start tackling the contributing factors to that.”