Department News COMPLIANCE
Missouri Usury Simplification Legislation Passes By Carol Barnett, Senior Vice President of Compliance Services
Missouri usury laws are a patchwork of confusing statutes that can unintentionally lead to violations. Tis year, the Missouri General Assembly passed Senate Bill 106 that provides some clarification and simplification. Tis article addresses a few of the major changes that become effective Aug. 28. Te sections listed are from the Revised Statutes of Missouri.
408.035 — Tis section covers loans that are commonly referred to as “exempt loans.” For loans in this category, banks and borrowers can agree in writing “to any rate of interest, fees, and other terms and conditions.” Tis category includes loans to a corporation, partnership or LLC for any purpose in any amount. However, business-purpose loans to an individual needed to be of $5,000 or more to be exempt. Tis potentially tripped up banks making smaller loans to a nonentity. For example, a $4,800 loan to a sole proprietor to buy equipment for his or her business would not be exempt and would be subject to one of the Missouri usury laws. Once this legislation is effective, this loan would now be exempt from usury restrictions.
408.100 — Te Consumer Loan Act covers most loans that banks make to individuals for consumer purposes. It does not have an interest rate cap, but it does specify the fees and charges that are permitted. It also restricts the collateral. Current law provides that a CLA loan cannot be secured by a lien on real estate, nonprocessed farm products, livestock, farm machinery or crops. Te new legislation retains the real estate collateral prohibition but removes the language prohibiting farm-related collateral. Banks would incur violations when a consumer
borrower had little collateral to offer, and the bank would take livestock or farm machinery as collateral and then have to refund fees and perhaps excess interest that resulted from making a prohibited loan under the Consumer Loan Act. Tat type of loan would now be permitted as a CLA loan.
408.234 — Tis section is part of what is commonly referred to as the Statutory Second Mortgage Act. Under current law, a loan under this act could not be made in an amount less than $2,500. Banks making a $2,000 home equity loan under this act were in violation and required to refund fees. Te new legislation removes this loan amount minimum.
Tese are just some of the helpful provisions in Senate Bill 106. Others relate to fee clarifications, streamlining default notices and simplifying the statutes regarding extension fees on consumer loans. Your loan platform systems and loan forms may need to be updated, and training your staff on these changes will help your bank be ready to take advantage of these provisions with the Aug. 28 effective date.
This article is for information purposes and does not contain or convey legal advice. The information should not be used or relied upon in regard to any particular situation without consultation with your bank attorney. MBA Compliance Services and its Compliance Force program offer various programs to aid banks with compliance needs. For more information, call 573-636-8151.
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