Liberty’s effort to regulate lenders earns more interest

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The City of Liberty maintains that it has the right to regulate companies that engage in high-interest loans, even if those companies claim to belong to a class of lenders protected by state law.

In a recent court case, the City of Northland defended a recently enacted ordinance as “valid and lawful exercise” and asked a judge to dismiss a lawsuit brought by two installment loan companies.

Freedom last year became the last of several towns in Missouri to pass an ordinance regulating high-interest lenders, which operate under one of the most permissive sets of state laws in the country. The local ordinance defines a high interest lender as a business that lends money at an annual percentage rate of 45% or more.

After voters passed the ordinance, which charges an annual permit fee of $ 5,000 and enacts zoning restrictions, the city informed seven companies that if they met the conditions set out in the ordinance, they must apply for a allowed.

Five companies applied and paid the fees. But two companies have filed a complaint. Global acceptance company. and Tower Loan said they are protected from local regulations by a section of Missouri law that states that local governments cannot “create disincentives” for any traditional installment lender.

Installment lenders, like payday lenders, serve clients who may not have good credit scores or collateral. Their loans are generally larger than a payday loan, with payments spread over longer intervals.

While installment loans can help people build credit scores and avoid debt traps, consumer advocates have criticized the industry for high interest rates, aggressive collection tactics, and deceptive marketing of complementary products, such as credit insurance.

George Kapke, a lawyer representing Liberty, said the city is not trying to restrict or regulate installment loans as defined in state law. But some companies offer a mix of products, including shorter-term loans that exceed the 45% annual interest rate set in the city ordinance.

“The position of the City of Liberty is that as long as you are traditional installment lenders, we make no effort to regulate your activities,” Kapke said. “You can do whatever state law tells you to do. But as long as you choose to go beyond the traditional installment lender and provide the same type of loans as payday lenders, title lenders, and other predatory lenders, we can still regulate your business. ”

Installment lending has grown in recent years as more states have passed laws to curb payday lending. The industry is paying close attention to scrutiny.

“We’re seeing a lot of ordinances popping up across the country and a lot of them are too broad,” said Francis Lee, CEO of Tower Loan, which is based in Mississippi and has branches in Missouri and others. States. “We don’t want to be confused with the salary. Our loans measure the customer’s ability to pay and are structured with recurring monthly payments that provide the customer with a roadmap to getting out of debt. “

In response to a previous article on FlatlandLee said his business loans don’t carry triple-digit interest rates-a criticism addressed against its industry in general. He said the annual percentage rate on a typical loan his company makes in Missouri was around 42% to 44% – just below the Freedom Ordinance’s 45% threshold. But some loans go beyond that, he said.

“We’re going to make a $ 1,000 loan, we’re going to make a $ 800 loan,” he said. “These loans will exceed 45%. I don’t want to be in a position to cut loans of a certain size. “

Despite being a party to the Liberty lawsuit, Tower Loan did not recognize any practice that would cause it to be regulated by the city’s new ordinance. He did not apply for a permit or pay the fees.

World Acceptance Corp., which is based in South Carolina, paid Liberty’s $ 5,000 permit fee under protest.

In addition to the lawsuit, Liberty’s new ordinance is threatened by an amendment attached to a major finance bill recently passed by the Missouri legislature.

the amendment, proposed by Curtis Trent, a Republican lawmaker from Springfield who has received financial donations from the installment loan industry, refines the language of state law to protect installment loan and specifically prohibits local governments from collecting payments permit fees or other fees. He also says that installment lenders who win in lawsuits against local governments will automatically have the right to recover legal fees.

Consumer advocates and others have urged the government. Mike Parson not to sign the bill containing the Trent amendment. The governor did not say what he was going to do.

Kapke said he was not sure how the possible legislation might affect Liberty’s attempt to regulate high interest lenders. The champions of the ordinance fear that this could be interpreted as protection for any company that offers installment loans as part of its portfolio.

“If the governor signs the legislation, it could render the trial moot. We don’t know yet, ”Kapke said.

Flatland collaborator Barbara Shelly is a Kansas City-based freelance writer.

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