While St. Louis voters decide among mayoral and aldermanic candidates in the city’s primary election next Tuesday, they’ll also answer a question about short-term lenders.

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Proposition S asks whether the city should impose an annual $5,000 fee on short-term loan establishments. Those include payday and car title lenders, as well as check cashing stores.

Here’s what else it would do:

The city would use the permit money to hire a commissioner, who would then inspect short-term lenders.

The commissioner would make sure any new short-term lenders seeking a permit are at least 500 feet from houses, churches and schools, and at least one mile from similar businesses.

Any short-term lending establishment would have to clearly post what it charges in interest and fees

The short-term lender would also have to offer a guide on alternatives to short-term loans.

Alderman Cara Spencer, 20th Ward, sponsored the legislation, putting the question on the ballot. She said the goal is both to bring more regulation to the industry in St. Louis, but also to push state legislators on the issue.

“The state of Missouri is really failing consumers,” said Spencer, who is also executive director of the Consumers Council of Missouri. “The state has some of the most lax, if not the most lax laws in the country related to predatory lending.”

For example, while the cap for a two-week loan in Iowa, Kansas and Illinois is about 15 percent, in Missouri it’s 75 percent. The annual percentage rate — the combination of fees and interest rates — is capped at a whopping 1,950 percent.

“The sad reality is that it’s legal,” said Galen Gondolfi, chief communications director and senior loan counselor at Justine Petersen.

The St. Louis-based non-profit organization offers low-interest loans to small business owners and individuals. Gondolfi said he sees clients who often have multiple high-interest loans from short-term lenders.

While Justine Petersen can refinance some loans, Gondolfi said the non-profit, along with a handful of others, cannot meet all the capital needs of low-income residents in the city. And because few banks and credit unions offer small loans, Gondolfi said he understands how people turn to payday or car title loans.

“There’s not a friend or family member who can lend them the money, and so they have no other choice,” he said. “The other predicament is that they’re not fully understanding what they’re getting into, and it’s not necessarily their fault.”

Gondolfi said the loan agreements often come with pages and pages of fine print.

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In Missouri, short-term lenders can roll over loans up to six times. So while the average short-term loan is about $300, the average APR paid is 462 percent, according to the latest report on the industry by the Missouri Department of Insurance, Financial Institutions and Professional Regulation.

St. Louis Public Radio tried to contact to the United Payday Lenders of Missouri, an industry group based in Jefferson City. No one from the group returned calls or emails for comment.

Why Missouri?

Jeanette Mott Oxford, a former state representative from St. Louis, served on the Financial Services Committee in the Missouri House for several years.

The Democrat offered some insight about why state legislators haven’t tightened regulation of the short-term lenders.

“To see how powerful the payday industry is all you have to do is sort of drive up and down the main business drag here in Jefferson City on Missouri Boulevard and you’ll see about 20 payday loan and title companies,” she said.

Oxford said the loan industry contributes a lot of money to legislators’ campaign coffers.

Now as executive director of Empower Missouri, a group that advocates for issues like a higher minimum wage and tightening regulation of the short-term loans, Oxford said she’s hopeful that change is coming.

“I think we can build a winning campaign on this in time,” she said. “A lot of the public is still ignorant of the situation. If you haven’t been in this position, you may not know how insidious it is.”

She said when she tells people that it’s legal to charge more than 1,900 percent APR, they’re often incensed.

More alternatives

Those who scrutinize the short-term lending industry acknowledge that it's not likely going away. An often-cited statistic is that there are more payday lenders in the United States than McDonald's restaurants.

“I’m a firm believer that while policy can help to solve some of the problems around payday lending, there have to be market-based solutions,” said Paul Woodruff, executive director of Prosperity Connection.

The non-profit provides free financial education services to low and moderate-income individuals in St. Louis city and county. But last year Prosperity Connection moved into the small-dollar loan market, opening the RedDough Money Center in the city of Pagedale.

“The entire premise is to provide people who are really option-less in the banking and credit union market, to get small dollar loans,” Woodruff said.

The loans are for $500 or less with a top APR of 36 percent.

Woodruff said the firm closed on 492 loans last year that averaged $313 a loan, for a total of $215,000. Now the non-profit plans to open a RedDough Money Center in south St. Louis this spring.

Still, Woodruff doesn’t expect to take too much business away from the traditional short-term lender.

“No matter how big we get in the next couple of years, we’re still going to be a drop in the bucket,” he said.

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