More than 90 nursing homes in Missouri, either licensed as payday loan companies or hosting a payday lender, regularly make payday loans to their employees at high interest rates and deduct payment of the loan, interest and fees from the employees’ next paychecks.
This is among the findings of a Better Business Bureau (BBB) study of the payday loan industry in Missouri. The state allows lenders to charge up to a 1,950% annual percentage rate (APR) on two-week payday loans, the highest allowed among the 43 states that have either banned or set APR caps on payday loans. The other seven states have no APR caps.
Two allied groups of 62 nursing homes hold payday loan licenses. Principals in the two groups are James and Judy Lincoln, Sikeston, Mo.; Mathias P. Dasal, Eldon, Mo.; Gary Crane, Rogers, Ark.; and Timothy Drake, Pascagoula, Miss. The sole director of a third group of 30 nursing homes is Don Bedell, Sikeston, who is also the sole director of a payday loan company that has licenses at the homes.
BBB staff members visited three of the nursing homes, each operated by one of the three groups. Officials at the nursing homes told the BBB that payday loans were made to employees and that the loan amount plus interest and fees were deducted from the employees’ next paychecks.
An official at one nursing home with 63 employees said the home made eight or nine loans per day to its employees. An official at a second home said there are about 100 employees and there are about 12 to 15 loans made per day. An official at a third home said there are about 60 employees and four to six loans were made per day.
At one of the homes, a sign required by law stated that the maximum annual percentage rate (APR) was 912.50%. The other two homes did not have signs posted but at one home the BBB was shown two contracts, one calling for an APR of 365% and another, 304%.
In September 2006, then-Gov. Matt Blunt announced that nursing homes would no longer be allowed to make payday loans to their employees, saying, “Employers should not be making money off the wages they pay their hardworking long-term care facility employees.” Since then, the Department of Health and Senior Services has been in negotiations with the nursing homes, a spokesman for the department said. The negotiations “became serious” this year and in April the department and nursing home owners reached an agreement which will allow the parent company of nursing home subsidiaries to hold a payday loan license and to conduct payday loan operations at the nursing homes that it owns, with payback of the loans being deducted from the employees’ paychecks.
Employees will take out loans through computer terminals at the nursing homes operated by the parent company of the nursing homes, the spokesman explained. The transition to the new system, which in essence changes the present system very little, will be completed by late September, according to the spokesman. Department officials said loans were made only to employees and not to residents of the homes.
The BBB study also found that:
- A survey by the Missouri Division of Finance disclosed that of about 3,700 payday loans, 12% or 439 were made to persons on Supplemental Security Income (SSI) or to disabled persons.
- Since enactment of Missouri’s payday loan laws in 2002, consumers have been charged an average annual percentage rate (APR) of more than 400%.
- Missouri’s lax laws have attracted several out-of-state lenders, including 34 online payday loan companies.
- In a consumer group study listing the cost of payday loans to borrowers with five or more loans, Missouri with $317 million was second only to California.
- Consumer groups state that using payday loans doubles the risk a borrower will end up in bankruptcy.
- With one national exception dealing with military service personnel, legislation on the national level and in Missouri has failed repeatedly.
- Missouri has more payday loan outlets than any of its eight contiguous states with the exception of Tennessee.
- Three lenders operate 56% of the 1,275 payday loan outlets in Missouri.
“Desperate, unknowing people can get caught up in a downward financial spiral, and end up in a worse condition,” said Michelle L. Corey, president and CEO of the BBB in St. Louis.
The study concludes that payday loan companies have ceased operations in states that have enacted strict regulations on payday lending, including placing a 36% or lesser APR cap on interest and fees.
Copies of the study have been sent to all Missouri legislators.
Long-time consumer advocate Michael Ferry, executive director of Gateway Legal Services which provides legal aid for the poor in Missouri and a board member of the National Consumer Law Center, said, "Payday loans are very, very expensive for what you get. The high interest and high fees make it easy to end up much worse off than you were before you took out the loan. Before you take out a payday loan, you should (1) know exactly how much it will cost you to pay the loan back, including interest and fees, when the loan comes due, and (2) know exactly when and how you will get enough money to make that payment. If you don't know both of those things with total certainty, don't take out the loan."
The case of an Overland single mother of two children may be typical of many payday loan borrowers. She told the BBB that when her car broke down she took out a $200 payday loan to have the car repaired because she needed it to get to work. She said that through several pay periods, she went to the payday loan office, paid the interest and fees that were due and signed for a new loan. Asked how much she had paid altogether for the $200 loan, she said she wasn’t sure but it was “hundreds and hundreds of dollars. It just kept climbing and climbing. It’s all so confusing.”
Since she lost her job when her employer cut expenses, she has been dunned by the company. She said the company also has been calling her friends and relatives, including her 80-year-old mother. “I’m having to scrape enough money to put food on the table and keep a roof over my head.”
The lead plaintiff in a class action suit against QC Financial Services, which does business as Quik Cash, is a Florissant mother of two teen-aged children. When she was going to close on buying a home, the broker said she needed $1,500 more than was originally indicated. She took out a $450 loan, but ended up paying $746 before it was paid off. Because half of her $844 salary was used to pay the loan, she couldn’t pay her utilities and took out a $300 loan. She paid $461 on that loan, but within a month had to borrow again and the cycle resumed. She regularly paid off the old loan with new loan proceeds, becoming such a regular at the payday loan office that the company would have the new loan documents ready before she came in to sign for the loan.
The suit alleged, “In short, Quik Cash made a loan that was illegal, failed to ever evaluate whether (the borrower) had the ability to pay the amount borrowed (contrary to the law’s requirement) and consistently renewed (the borrower’s) loan without reducing the principal despite the fact that the law prohibited it.” Quik Cash denies any wrongdoing.
While Missouri does not prohibit payday loans, 12 states do.
Payday loan companies contend that they provide a valuable service to cash-strapped consumers needing quick cash for short-term, unexpected financial setbacks who may not have other ways to get the needed funds.
The BBB and Federal Trade Commission recommend that before you decide to take out a payday loan, consider some alternatives:
- Consider a small loan from your credit union or a small loan company.
- Shop for the credit offer with the lowest cost. Compare the annual percentage rates (APR) and the finance charge which includes loan fees, interest and other credit costs.
- Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments. Many may be willing to work with consumers who they believe are acting in good faith.
- Contact your local consumer credit counseling service if you need help working out a debt repayment plan.
The BBB study is available online at
http://stlouis.bbb.org/Storage/142/Documents/PaydayLoanReport09color.pdf.
About the BBB
The BBB is a non-profit organization that sets and upholds high standards for fair and honest business behavior. The BBB provides objective advice, free business Reliability Reports, charity wise-giving reports, and educational information on topics affecting marketplace trust. Please visit www.bbb.org for more information.
( Note: To no longer receive these messages, please send an e-mail: bbb@stlouisbbb.org, send postal mail: BBB, 15 Sunnen Dr., Ste. 107, St. Louis, MO 63143 or call 314-645-4636 or 1-888-996-3887.)