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Payday loan invoice: reform or bogus? | Local company

If signed by the governor, the bill would make two main changes. It bans the renewal of two-week payday loans, a practice that pushes interest charges to astronomical levels. It also gives troubled borrowers two to four months to repay debt without additional interest.

Critics say the reforms are riddled with loopholes.

“It’s no use,” said Barbara Paulus of Metropolitan Congregations United, a church group that opposes the breakdown industry.

First, an introduction to payday loans: stores typically charge 15-18% interest on a two-week loan, secured by a post-dated check from the borrower.

If the car breaks down and you have to get to work, a walk to the breakdown store can save your job. On loans under about $ 200, this interest charge can be lower than the cost of a bad check, as the industry points out.

The real problem is, most people can’t pay the money back within two weeks. Thus, lenders renew the loan for two additional weeks at an additional charge of 15-18%. And so on. Then begins a cycle of dangerous debt that can ruin a family that is already struggling to pay its bills.

In Missouri, the average payday loan is $ 300, according to a survey last year by the Missouri Finance Division. The average loan is renewed between once and twice. So a charge of $ 45 on a $ 300 loan over two weeks turns into $ 90 on a one month loan and so on.