If you’ve ever taken out a payday loan in Kansas, you know exactly how high the fees and interest rates are. If you’re like most Kansans, you pay on the loans for weeks, months and even years, and barely reduce the principal balance. Loaded up front with fees and interest rates, these loans have trapped too many Kansans in a cycle of debt. That’s why a group of grassroots organizations is finally taking positive steps in hopes of reforming Kansas’ payday loan rules and regulations.
This year, the organization Kansans for Payday Loan Reform plans to take on the issue of payday loan reform by introducing a bill for consideration by the Kansas Legislature. Their plan is to ask for a major shift in what’s considered fair lending and for changes in Kansas regulations that allow companies to charge 391% annual percentage rate.
Kansas’ Current Law
Currently, 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, for just 14 days use of the funds, calculates to a much higher Annual Percentage Rate (APR). In fact, the APR for a $100 payday loan, with a finance charge of 15% and a term of 14 days, is 391.07%.
These rates are outrageously excessive when compared to bank loans that can charge from 2% to 4% APR for people with good credit, and 8% to 10% APR for people with moderately good credit. Payday loan rates are even outrageous compared to credit card rates that can often run between 14% to 22% APR. However, in most cases, people who take out payday loans don’t qualify for traditional forms of credit - that’s why Kansans for Payday Loan are not pushing for the total elimination of these alternative loan products, but for the reform of the laws that regulate them.
High on their list of wanted reforms are increasing the length of these loans and allowing individuals to make installment payments over months, not weeks. While the bill they hope to introduce this year is still being drafted, it will most likely cap payday loan interest rates at 36% APR and it will require installment payments as opposed to the current balloon payments, where the total loan amount is due at one time.
“These installment payments will allow individuals to pay back the loan over a four-to-six month period, so they don’t have to pay back the entire amount at one time,” said Marlee Carpenter, with Bright and Carpenter consulting, a lobbying firm helping to grow legislative support for payday loan reform.
Nationally, there is a big movement to reform payday loan policies. Kansans for Payday Loan hopes to model their proposed bill after legislation passed recently in both Ohio and Virginia. In Virginia for example, legislation changed references from payday loans to "short-term loans." The measure also capped the interest and fees that may be charged under a short-term loan at an annual rate of 36%, plus a maintenance fee. Additionally, it increases the maximum amount of such loans from $500 to $2,500.
With the backdrop of a global pandemic, Carpenter said the bill would be beneficial to many struggling with their finances.
“There are folks that have been unemployed, or have had some health issues — and so they may be in need of some of these loans, that they have not had to make use of before,” she said. “So, we think that capping interest rates and allowing installment payments will allow some of those folks to get out of the cycle of debt, and be more productive citizens and taxpayers in the state.”
Advancing the bill to eventual passage will be no easy task. Payday loan reform efforts in Kansas date back to the 1930s.
“There’s a lot of opposition that has been very successful for decades,” said Steve Schiffelbein, co-chair of Topeka JUMP, an organization working in concert with the grassroots movement. “But, it’s something that’s critical, and even important now with people struggling financially during the COVID-19 pandemic.”
Kansans for Payday Loan Reform organizer Shanaé Calhoun said the movement is very vocal about their position with payday loan reform.
“We’re interacting with lawmakers, and having a conversation about this issue,” she said. “We’ve been building support across the state with organizations and faith communities since August 2019. They’ve been educated on this issue, and have been telling stories from their local communities about how people are impacted — and are now ready to mobilize, and be actively involved in seeking reform.”
Even with about 24 organizations working as part of the grassroots collaborative, Calhoun says more support is needed.
The opposition has longstanding relationships with lawmakers, but Calhoun said the grassroots movement has the “social and moral argument” on their side, as well as the “research on our side that reform is the way to go.”
“They are well-organized to maintain the status quo,” she said of the opposition. “That’s really what we’re up against.”
Added Carpenter: “The opposition would support business-as-usual. And we do not want payday loans to be business as usual. Reform is needed so it is not business-as-usual.”
Carpenter said because of the unpredictability of the pandemic, as well as the legislative process, that there is no firm timeline for passage of the bill. But “our hope is that it does pass this legislative session,” she said, adding that she’s hopeful the bill will be introduced into committee this week.
“We are very encouraged by our discussions with legislatures,” she said. “We think the time is right to put some of these provisions in place. And, so we’re very encouraged that this is the session where the bill is passed.”