HCS HB 738 -- SMALL LOANS

SPONSOR:  Liese

COMMITTEE ACTION:  Voted "do pass" by the Committee on Banks and
Financial Institutions by a vote of 19 to 0.

This substitute amends various laws dealing with small consumer
credit loans and title loans.  In its main provisions, the
substitute:

(1)  Redefines "consumer credit loans" to mean loans for
personal, family, or household uses that are made in amounts of
$500 or more.  The loans are often referred to as "small loans";

(2)  Allows consumer credit lenders to renew their licenses by
posting a surety bond or an irrevocable letter of credit for
$100,000, in lieu of conducting the annual audit otherwise
required by law;

(3)  Removes personal dwellings from the definition of "titled
personal property" for purposes of determining property eligible
to be collateral for title loans;

(4)  Clarifies that all information submitted by a title lender
to the Division of Finance is confidential;

(5)  Requires title lenders to be licensed by the division.
Current law only requires title lenders to be registered;

(6)  Removes the residency requirement for title lenders;

(7)  Requires a $20,000 surety bond or irrevocable letter of
credit from all title lenders seeking licensure;

(8)  Eliminates the requirement that a title loan borrower must
pay fees upon renewal of any title loan agreement;

(9)  Requires title loan borrowers to reduce the principal of
the loan by 10% of the total principal upon the third renewal or
any renewal subsequent to the third renewal.  Current law only
requires a principal reduction of 10% of the original principal;

(10)  Provides title loan borrowers with the same notice and
opportunity to cure defaults that is provided to other borrowers
and eliminates the existing requirement whereby title loan
borrowers are required to deliver the property described in the
loan to the borrower at the end of the first loan period;

(11)  Allows title lenders to charge only those interest rates
and fees allowed to other small loan lenders.  Small loan
lenders may charge any interest agreed to by the parties, but
may only charge fees on the initial loan contract, and those
fees cannot exceed 5% of the principal or $50, whichever is less;

(12)  Requires certain additional disclosures and forms for all
title loans, including informational notices to borrowers, the
potential consequences of default, and the maximum rates charged
by the lender;

(13)  Mandates that title lenders keep records on the loans and
notices given to their customers for at least 2 years;

(14)  Requires all title lenders to be examined by the Division
of Finance prior to ceasing business;

(15)  Limits title lenders to the same procedures for collection
on defaulted loans as is provided for other small lenders;

(16)  Establishes penalties for title lenders who violate the
provisions of the bill, including license suspension or
revocation, civil penalties of up to $1,000 per day, or cease
and desist orders;

(17)  Makes all lenders in the business of making unsecured
loans under $500 (otherwise referred to as "payday lenders"),
with exceptions for certain types of loans, comply with the same
principal reduction, notice and opportunity to cure, interest
and fee limitations, disclosures and forms, record-keeping,
examination, default collection, and penalty provisions that are
applied to title lenders throughout the substitute, except
that:  (a)  the principal reduction requirements for lenders
making unsecured loans under $500 do not apply until the fifth
renewal; and (b)  no surety bond is required of these lenders;

(18)  Defines "consumer installment lender" and "consumer
installment loan" to mean loans, and persons making such loans,
of any amount that are paid in installments of no less than 4
installments over no less than 120 days; and

(19)  Requires consumer installment lenders to be licensed and
to follow the interest and fees, notice, opportunity to cure,
and collection procedures established for other lenders.

FISCAL NOTE:  No impact on state funds.

PROPONENTS:  Supporters say that the bill would enact key
consumer protections and disclosures for loans that are
currently unregulated, while still allowing the lender to supply
a needed service to consumers.  The bill would fix 4 critical
problems which currently exist in the small lending industry:

(1)  Renewals:  The bill would limit renewals and rollovers of
these small, high interest loans so that consumers would be able
to pay them down in a more timely and less costly fashion;

(2)  Notice and opportunity to cure: Consumers would receive the
same rights upon loan defaults that are provided in more
traditional loans;

(3)  Disclosure:  Interest rates and charges would have to be
posted in a conspicuous manner so that consumers would be more
aware of the cost to them;

(4)  Conditions on sales of repossessed property:  Consumers,
rather than lenders, would receive the difference on any sale of
their repossessed property, as is the case with more traditional
loans.

Testifying for the bill were Representative Liese; Advance
America Payday Loan Company; Missouri Financial Services
Association; Household International; Missouri Bankers
Association; Missouri Credit Unions System; Missouri League of
Financial Institutions; Missouri Independent Bankers; QC
Financial Services; Consumer Lending Alliance; and United Payday
Lenders of Missouri.

OPPONENTS:  There was no opposition voiced to the committee.

Greg Linhares, Legislative Analyst

Missouri House of Representatives
Last Updated November 26, 2001 at 11:45 am