In the state of Missouri payday lending is considered legal.
Missouri has a limit on the amount a payday loan that a borrower can take: $500 or less. Loans can be taken from 14 days up to 31 days. All interest and fees should not exceed 75% of the initial loan amount (for the life of the loan plus all renewals). 6 roll-overs are officially allowed by state laws. All criminal actions against borrowers are prohibited.
The laws concerning payday lending in Missouri are the most favorable for the lenders and, actually, the softest in all the states.
The existing legislation (Mo. Rev. Stat. 408.500 et seq. ; 4 Mo. Code Regs. 140-11.010, 140-11.020) passed in 2002 and it allowed a lot of payday lending businesses to flourish. The state has got truly the most lenient laws in regard to the interest rates as well.
Missouri Payday Lending Statutes
Payday lending is considered legal in the state of Missouri according to Mo. Rev. Stat. 408.500 et seq.
Payday lenders are allowed to operate in the state provided they have got a license issued by the state’s Division of Finance. It is required that the license was displayed in a visible place and contained all the information about the payday lender and the business as well as the Division of Finance contact information.
It is required by the law that a lender should provide a borrower with a copy of agreement including all the information about the payday lending transaction. Beside, a notice about the terms and condition should be included and a borrower is required to read the contract carefully before signing it. Transaction can be cancelled by the end of the next business day in case of necessity.
It is required that a lender should make the information about charges, terms and APR visible and clear to customers. Moreover, a lender is also required to keep all the documents about payday lending transaction and all the records for at least 2 years. In case any lender decides to cease the operation of a lending company, the Division of Finance must be notified at least ten business days prior to it. Moreover, a lender is obliged to provide the letter explaining the reasons for such a decision, hand in the license and also give the location of any receivables.
Loan Amount in Missouri
- According to the amendments in the law in 2006, the maximum amount of a payday loan should not exceed $500.
- One loan at a time is allowed and it is not prohibited for a lender to charge fees and interest.
- Lenders are also allowed to give 6 roll-overs to a borrower, provided that the latter is able to lessen the principal amount of a loan by 5% before every renewal.
Rates, fees and other charges in Missouri
- The law limits the total amount of all interest and fees to 75% of the initial loan amount (for the life of the loan plus all renewals).
“Any person, firm, or corporation may charge, contract for and receive interest on the unpaid principal balance at rates agreed to by the parties. No borrower shall be required to pay a total amount of accumulated interest and fees in excess of 75 percent of the initial loan amount on any single loan.” (408.505.3 – Mo. Rev. Stat. 408.500 et seq.).
Thus, the APR in the state of Missouri is the highest – in some cases it amounts to 1950%. Here is also the most recent figure for 2019 – APRs for payday loans in Missouri can reach 443% (*According to the Center for Responsible Lending 2019: “Typical APR based on
- Also, Section 408.020. reads: “When no rate of interest is agreed upon, nine percent allowed as legal interest.“
Maximum term for a payday in Missouri
- Loans are given for the term of 14-31 days.
- Criminal actions against borrowers are prohibited in the state unless it is when the borrower stopped payment on the check or closed the account before the repayment was done.
- Collection fees are allowed in case of insufficient funds but not via a series of Automated Clearing House (ACH) transactions. Besides, lenders are obliged to keep all the customers’ information private and not to share it with other lenders. It is required that a borrower was informed about APR charged by the payday lending business before signing the agreement.
More information about payday loans in Missouri can be found on the official page of the state’s Division of Finance.
The History of Payday Loans in Missouri
1930s– The first payday loans in Missouri can be traced. In order to avoid complying with the usury laws, lenders began issuing short-term loans with post-dated checks as collateral. 1980s– Interest rate limits on payday lenders were placed by the state. However, they seized being effective in 1998.
- 1998 – The Missouri Legislature eliminated the usury cap altogether and by doing so gave payday lenders the freedom to charge whatever interest they wanted (actually, legally).
- 2001 – A performance audit of the payday loan industry (issued by Missouri Auditor Claire McCaskill) revealed the lack of interest rate caps. According to the audit, the average APR for a payday loan was 391%. Out of good intentions, McCaskill recommended introducing a cap on the number of loan renewals for a customer. No offer to cap interest rates was proposed, however.
- Eventually, the Missouri Legislature came up with the law that only made the situation worse as it “capped” fees and interest at 75% of the principal amount of the loan. This “limitation” led to ~1950% APR on a 2-week loan, the highest allowed in the country.
- 2006 – The Military Lending Act effectively capped payday loans offered to the military at 36% APR. No lender in Missouri is now allowed to offer loans to the military in excess of 36% APR.
- June 2, 2016 – The Consumer Financial Protection Bureau (CFPB) proposed a Payday Loan Rule that hasn’t yet fully come into effect (the federal rule is expected in November 2020).
- There were attempts to change the situation on the state level (i.e. HB2657 that suggested capping fees and interest at 35% of the amount of a loan). It died.
- 2018 – Nowadays – Thus, despite the above mentioned federal regulations, there has been no change in legislation in Missouri for the payday lending Industry for 2018.
- The current situation is not the same, however, as it was in the 2000s: compared to 1,335 licensed lenders operating in the state in 2005, there were 653 in 2017, which shows a somewhat declining trend in the industry. To a certain extent, it was caused by a shift to a different type of loans – installment loans. Also, the decrease can be explained by the fact that the elimination of usury cap in 2002 lead to the oversupply of stores and too many appeared in the state. Now, however, there is no need in such numbers, so, they shrink. Nevertheless, the use of payday loans in Missouri is still twice the national average.
(As of April 2019)