•It’s expensive to be poor - especially in Kansas, where securing emergency cash comes at a price of nearly 400% interest. It’s something a grassroots group, Kansans for Payday Loan Reform, is working to change.
It’s an issue that impacts one in 10 Kansas adults. Cindy Hutchinson, from the small town in Southeast Kansas, is one of them. She’s a full-time caregiver for her disabled husband Chris, and they struggle to make ends meet on just his disability income.
Prior to Chris suffering from a series of strokes, Cindy says they led a pretty good life. Chris was a 1st Sgt. in the Army Reserve who had completed a tour in Kuwait. His full-time job was as the civilian administrator for his Army Reserve Unit.
“He always said he would never retire,” said Cindy. However, after the third stroke, it was clear he’d never work again.
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Cindy tried holding down an overnight job at a convenience store. She figured she could work while Chris slept, but taking care of Chris during the day left her little time to rest, so she finally gave up and became his full-time caregiver.
Now they exist on Chris’ disability income and the social security dependent income their daughter received. After their daughter graduated high school, her benefits ended and their budget took another big hit.
They precariously managed to stay afloat until, as things eventually do, something unexpected came up. Vandals in their neighborhood – they believe they were teenagers – shot out their car window. This was the family’s only means of transportation and they needed it to get Chris to his constant list of doctor and therapy appointments.
To cover the cost of the window and few other repairs that they’d held off on, they took out a $500 payday loan. Chris will tell you, getting the money was a snap, but paying the money back was a long and expensive ordeal.
She eventually paid off her first loan, which ended up eventually costing her $1,500. Since then, she’s taken out two other loans and she’s two years in on paying her current $500 loan.
KANSAS PAYDAY LOANS
The maximum payday loan in Kansas is $500 with a repayment term of between 7 and 30 days. Lenders can charge no more than 15% of the amount of the loan. Depending upon the term and amount of the loan, 15% of the amount financed can calculate to a much higher Annual Percentage Rate (APR). For example, the APR for a $100 payday loan, with a finance charge of 15%, and a term of 14 days, is 391.07%.
Kansas APR rate puts them right in the middle of the pack when compared to other states. Texas has the highest rate at 662% APR, followed closely by Utah, 658%, and Nevada, 652%. Sixteen states and the District of Columbia have an interest rate of 36% or lower.
Despite the high APR, payday loans in Kansas are big business. In 2018, according to the State’s Bank Commissioner, there were 685,000 payday loans in Kansas totaling $267 million. With the potential to reap big revenue, more than 60 companies provided payday and title loans at more than 300 locations.
WHO TAKES OUT PAYDAY LOANS?
In short, “they’re the working poor, or people living paycheck to paycheck,” said Nick Bourke, the consumer finance project director for the Pew Charitable Trusts. “It's also somebody who's making typically about $15 an hour on a full-time basis, so that's $30,000 a year or so, on average. So they're kind of mainstream people.”
However research has found that borrowers are disproportionately disabled, elderly, veterans and African Americans.
Why do most people get a loan? “Seven out of 10 times in our research, is they need help paying some kind of regular bill, like mortgage or rent or car payments,” said Bourke.
CALL FOR PAYDAY LOAN REFORM
While Kansas’ APR may not be as high as it is in some states, there is a growing movement to further reduce the rate. They’re calling for a real shift in what Kansans think is fair lending and for Kansans to stop saying that it’s OK to allow a 391% APR for payday loans.
The group Kansans for Payday Loan Reform (KPLR) was organized in fall 2019 to help build support and momentum around the reform of payday loan laws in Kansas. Approximately 24 organizations are a part of the grassroots collaborative.
While the group hasn’t proposed any legislation for adoption, they’re asking for two major reforms:
- That people have enough time to repay the loan in affordable installments over months and not weeks. Currently payday loans in Kansas can be for a maximum of 30 days.
- To limit the loan payment amount to no more than 5% from each paycheck.
“Similar policies are working in other states where many of the same companies operate and make reasonable profits, because these states successfully reformed state regulations and we can too,” said the Rev. Dr. T. Lamont Holder, president of the Missionary Baptist State Convention of Kansas, a partner organization of KPLR.
Ohio is one of the most recent states to successfully reform their payday lending laws. Before this bi-partisan effort, Ohio had the highest payday loan APR in the country. In 2018 their legislature approved a complete overhaul of their payday loan policies that have been in effect since April 2019.
As with all payday reform “battles” across the country, high-cost lenders lobbied against the change and insisted reform would eliminate access to credit. In the wake of Ohio’s change, some lenders did leave, but credit is still widely available.
Ohio’s new structure sets new rates and policies for loans under 90 days and introduces short-term installment payment loans with lengths between 90 days and one year. Now, for loans greater than 90 days, borrowers will pay no more than $300 for a $500 loan.
The law limits the amount borrowed to $2,500 from one or multiple lenders and borrowers have to sign a declaration they do not have more than $2,500 in short-term loans and lenders have to make a concerted effort to check.
The law caps loans at a 28% annual percentage rate and sets new limits on fees. However, with fees, the APR goes up. Monthly fees are capped to 10% of the original loan amount or $30, whichever is less.
For loans less than 90 days, the monthly payment (including fees) cannot exceed 6% of the borrower's gross monthly income or 7% of net monthly income. For loans greater than 90 days but less than one year, fees and interest cannot exceed 60% of the initial loan amount.
In 2010, Colorado adopted what was considered a model for payday loan reform. The reforms pushed their average interest rate for payday loans down to 129% however their goal was to achieve an even lower rate.
The bill adopted by the state in 2010 increased the length of the loans from a maximum of 40 days to a minimum of six months and set an APR of 45%. However, additional monthly fees were allowed of $15 per $100 loaned to a maximum of $30 per month. With the additional fees, the rate paid rose to triple digits.
In 2012, a year after the plan was put in place, the amount the average payday loan borrower paid in fees was $341 per year, down from $518 in 2010, before the law changed. According to the Colorado Attorney General, the average loan contract in 2012 carried a 188% APR, compared to 339% APR in 2010.
Despite the change, Colorado was still seeing a relatively high default rate on their loans, in part due to the fact that despite being allowed to make payments on their loans, many of the individuals who took out loans just could not afford to take on any additional debt. This was demonstrated by consumers appearing to be re-borrowing in order to get cash to cover their payments.
Unsatisfied with their results in 2018 Colorado citizens vote to limit loans to 36% maximum APR including interest and fees.
THE 36% CLUB
With their change, Colorado became the 15th state plus the District of Columbia to set usury rates on loans at 36% or lower. Before them, in 2016, South Dakota adopted a 36% interest rate cap. This January, the Center for Responsible Lending released a report analyzing the impact of the 36% interest rate cap on the state.
The report, “The Sky Doesn’t Fall: Life After Payday Lending in South Dakota,” found that, two years after passage, South Dakotans still voiced strong support for the interest rate cap; opposed attempts to undermine the measure; and found that options are available in South Dakota that don’t have the devastating financial effects of payday loans.
In 2017, the Kansas House of Representatives’ Special Committee on Financial Institutions and Insurance considered HB 2267 that would have capped Kansas interest rates at 36%, but was similar to the 2010 Colorado legislation. The bill would have allowed lenders to charge a monthly maintenance fee of 5% of the original principal or $20. The bill also limited payday borrowers to one outstanding loan of less than $500.
The committee did not take any action, but instead suggested the Kansas Office of the State Bank Commissioners, the organization that oversees payday loans in Kansas, report to the legislature early the next year, 2018, on possible federal regulations.
We found no indication the follow-up report was given.
Alex Horowitz, a research officer with the Pew Charitable Trusts, told the committee that small loans can be a useful service for people — within limits.
“They can help people get through difficult stretches, but only if structured appropriately at affordable prices,” Horowitz said.
The Rev. Holder agreed, saying, “People want access to affordable loans, not debt traps.”
If you’re interested in seeing change in Kansas payday loan laws, connect with Kansans for Payday Rerform online at https://kspaydayreform.wixsite.com/website or on Facebook @ Kansans for Payday Loan Reform.