Is there an expert out there on the subject of payday lending in Missouri? It certainly seems to be something of a haven for payday lenders, despite the state’s attempts to paint itself as a strict regulator:

Sections 408.500-408.505 subject this type of lender to a host of consumer safeguards, i.e., places a 75% cap on interest and fees on the initial loan and renewals, limits renewals to no more than six, limits the term of the loan to 14-31 days, applies daily interest calculations, etc. These sections contain some provisions which go well beyond most “consumer protections”.

I’m not sure why the Missouri Division of Finance is so defensive, here, or why it feels the need to put the phrase “consumer protections” in scare quotes. But the fact is that in 2011, some 2.43 million payday loans were made — this in a state with a population of less than 6 million — and the average APR on those loans was an eye-popping 444%.

So it’s easy to see why consumer groups are pushing a law capping interest rates at 36%, and why payday lenders are opposing it.

The details here aren’t pretty. First of all, look what’s been happening to the payday lending industry over the past eight years, according to the state’s own figures.

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There’s been a steady rise in average APR, but that’s pretty much the only trend that can be seen in these figures. The total number of loans is actually down by 15% from its 2007 peak, while the number of active payday lenders has fallen by 18% in just two years. And borrowers seem to be getting smarter, too: they’re borrowing more money at a time, and rolling it over fewer times, thereby incurring fewer fees.

Meanwhile, the payday-loan default rate has been hovering steadily in the 6% range — reaching its peak before the financial crisis, interestingly enough — and acting as a silent rebuke to anybody who would dare to argue that interest rates in the triple digits are necessary to make up for the fact that so many payday loans go bad. (In fact, they’re reasonably safe, if only because they’re secured by a future paycheck.)

But the most interesting thing about the Missouri debate, for me, is the role of a group calling itself Stand Up Missouri, which has promulgated a particularly tasteless video which implies that standing up for high-interest-rate lenders is somehow analagous to the acts of the “poor people who followed Dr. King and walked with him hundreds of miles because they believed in civil rights that much”.

Stand Up Missouri is at pains to say that it does not represent payday lenders, and indeed that payday loans, which “do not include a budget review to determine if the borrower has the ability to repay the loan at the two-week or one-month maturity”, “can be difficult for a borrower to manage”.

Yet according to Scott Keyes at Think Progress, Stand Up Missouri “is funded – to the tune of $216,000 – by just seven payday lending corporations”.

The truth, I think, is a bit more complicated. There are payday lenders — and then there are Consumer Installment Lenders, as defined by Section 408.510 rather than 408.500 of the Missouri code:

In 2001, the “traditional” small loan companies and the “payday” lenders separated themselves at $500 with the payday lenders authorized for very short-term loans of up to $500 and traditional lenders able to make any loan from a minimum amount of $500 on up. The consumer installment lender provisions were needed to cover a gap: the borrower of a very small amount who needed more time than the 14-31 day limit on payday lenders… These loans are very much like Consumer Loans, but with some notable exceptions. For instance, the loans may be in any amount, secured or unsecured, but must be repayable in at least four (4) equal installments over a period of 120 days.

Stand Up Missouri represents these installment lenders, who are distinct from payday lenders: I think that Keyes is wrong that it’s just a bunch of payday lenders who “prefer the phrase ‘traditional installment loan’”. In the biennial report of the Missouri Division of Finance, payday lenders are listed over the course of 32 pages (119-150), while the installment lenders fill up just over 19 (160-179).

Installment loans are bigger than payday loans, and they’re not subject to biennial surveys in the same way that payday lenders are. But just eyeballing the sheer number of these entities, and the money they’re putting into opposing the current bill, I think it’s fair to assume that they’re more or less the same size as the payday lenders, in aggregate.

Which means that the number of loans made in Missouri every year at an interest rate of more than 36% is actually much greater than 2.43 million: it could be more like 4 million. Which is crazy, given the size of the population.

Even the Missouri Better Business Bureau has come out swinging against the abuses of the payday-loan industry. In a hard-hitting report dated July 2009, it noted that Missouri uniquely among nine contiguous states allows payday loans to be rolled over; that at least two Missouri nursing-home groups own payday lenders designed to lend money to their own employees; and that, in general,

Missouri’s weak payday loan laws have attracted major out-of-state lenders to engage in predatory lending, costing Missourians who can least afford it millions of dollars a year. Because the continually increasing debt owed to payday loan companies is so onerous, some consumers are caught in the “debt trap,” unable to pay the loan off or meet other needs such as utilities, rent and food. Bankruptcy is the only answer for some of these consumers.

All of which is to say that I’m no fan of facile columns defending payday lending in principle without getting too caught up in the way that it’s used in practice. Yes, as Tim Harford says, it’s possible that taking a loan at an interest rate of 1,350% could be a rational thing to do. But it’s simply not possible that most or indeed many of the recipients of those loans are doing the economically rational thing — even if you take into account the cost of a bank overdraft as the alternative source of funds.

The dreadful conceit of the Stand Up Missouri video is that a college professor who didn’t use credit cards and therefore didn’t have a credit history walked into her local credit union and was turned down for a loan — and that the credit union officer pointed her to an installment-loan shop instead, where she happily got a loan at an interest rate of somewhere well north of 36%.

Well, here’s my challenge for Stand Up Missouri: name that credit union. Credit unions exist to serve precisely this kind of person: I simply don’t believe that any credit union would turn her away and deliberately send her to a usurious lender.

And here’s my other question for Stand Up Missouri: we know the average APR on payday loans, so will you publish the average APR on your loans? These loans are all, by definition, over $500, so it’s hard to make the case that the APR has to be low just to make up for the small dollar amounts involved. And if New Mexico is any indication, it’s the lenders with 120-day term loans which are the very worst — worse than the payday lenders whose regulations they successfully skirt.

Finally, here’s a question for the Consumer Financial Protection Bureau: can you at the very least collate information on nonbank lenders in the 50 states, and the interest rates they charge consumers? One of the problems in Missouri is that while the payday lenders have their activities monitored in biyearly reports, the installment-loan shops seem to be acting without any need for any disclosures at all. And if we don’t know how big the problem is, it’s very hard to tell what kind of solutions might be necessary.