Newspaper Takes a Look Inside the Controversial and Booming Kansas Payday Loan Industry
By Paul RizzoPayday Loan Writer
Marty Jo Brave Bull’s truck was running on fumes, and she didn’t have the money to fill it up with gas. So she pulled into Quik Cash, a storefront at 1401 W. Sixth St., in Lawrence, Kansas.
It’s a scene that plays out across the state and the nation at an alarming rate, with a growing number of payday cash advance providers promising quick, short-term loans to get people through to their next paycheck. Industry critics say the fees are unreasonable, and that the companies exploit people who already are in financial trouble.
But the payday loan providers themselves say they’re simply filling a need, and that most customers are moderate in their borrowing habits.
“We don’t intend to offer these products in a parental kind of way. We trust our customers to make their own financial decisions. We don’t want to baby-sit them. We want to serve their financial needs,” said Tom Linafelt, a spokesman for Overland Park-based QC Holdings.
Matt P., a 31-year-old Lawrence man speaking under the condition that his last name not be used, is a prime example of how the payday loan industry can go wrong. He first used such a lender in 1999.
“The first time you go in [to one of these places], they’re very nice. They explain to you how much you can take out. They hold the check for two weeks and then you’re allowed to either have it taken out of your account or you pay them cash,” Matt said.
But Matt, whose first loan was for $100 with $15 interest, soon sang a different tune. He began taking out loans from one lender to pay off an existing loan at a different place. The cycle went on mercilessly until he eventually reached $6,000 in outstanding payday loans from 17 different lenders in Kansas and Missouri. It was a sum he was not able to pay off completely until earlier this year. Matt landed in trouble with “buydowns,” or partial repayments that allow the loan to be extended.
“I’m living proof that if you need money, go look to your family. Look to people you know,” said Matt, who used buydowns in Missouri (they are not legal in Kansas) to rack up debt. “That’s not the place to go. They open up in places where people are very desperate. It is a quick fix for them. It was a quick fix for me.”
The payday loan industry has emerged in the 1990s as traditional lenders withdrew from the market for small, short-term loans. Unlike other loans made to consumers, these are made in single installments, and the faxless payday loan is typically issued without a credit check. One study states the industry grew from virtually zero offices in 1990 to more than 10,000 in 1999. Today, there are about 22,000 in the U.S., 365 of them in Kansas.
Kevin Glendening, administrator of the Kansas Uniform Consumer Credit Code, said that many payday lenders in Kansas are legitimate, while others are not. The most common abuse involves illegal fees. For example, a company operating through the Internet might repeatedly submit a payment demand on an account with no funds, using a threat of “insufficient funds” to get the customer to take out more loans.
Then there's the fact that the seemingly small $15 fee tacked on to a $100 cash advance loan amounts to a 391 percent annual percentage rate. Is that egregious, or just par for the course with a short-term cash loan?
“Critics of the industry like to talk about the high APR. I think that’s the biggest complaint that we hear over and over again. It’s misleading, because yes, by law they have to disclose it as an APR, but it’s a two-week loan,” said Lyndsey Medsker, a spokeswoman for the Community Financial Services Association, a Washington, D.C.-based trade group.
A 2001 study by Georgetown University suggests someone like Matt is an atypical customer of payday loan firms. Most people surveyed in the study were found to use the loans infrequently, but 22.5 percent said they had taken out 14 or more loans in the past year. Meanwhile, 16.5 percent had paid off one payday loan company with proceeds from another company.
Yet the industry asserts that it's the working middle class who typically uses the loans — all customers are required to have checking accounts and steady incomes in order to gain quick cash loan eligibility. As the debate over the Kansas payday loan industry continues throughout 2006, we'll keep you up to date as to any further developments we hear about.
