TOPEKA – A consumer finance expert recommends Kansas payday loan reforms that could save consumers more than $ 25 million a year while maintaining access to credit.
These loans have come under fire in states across the country, with some going as far as to ban them. The data suggests that the majority of those who avail of these loans are white, but African Americans are disproportionately affected.
TiJuana Hardwell, a Wichita community organizer, shared her personal experience with the predatory nature of the current credit structure with the Kansas Commission on Racial Justice and Justice Subcommittee on Economics Thursday. She recalled her mother getting caught up in a cycle of loans and repayments to support Hardwell and her six siblings after a divorce.
Every payday, after cashing her check from work, her mother drove to repay the loan and then immediately took out another loan to make sure they had enough money to live on. Sometimes she even took out loans from two lenders at the same time.
“If we talk about a system, it has to be dismantled,” Hardwell said. “This is something I willingly gather people around. I want to raise them. I also want to make sure these companies are accountable for how they offer these loans. “
A $ 300 payday loan in Kansas often costs around $ 450 in fees for a total of $ 750, according to Pew Charitable Trusts. Long term loans have become increasingly popular in Kansas, but there is no limit on the lender.
Gabe Kravitz, a consumer finance expert at Pew Charitable Trusts, said lines of credit for small sums can be beneficial when properly structured, but in Kansas, conventional payday loans do more harm than good. He said the two-week loans that many lenders offer typically take a third of the borrower’s next paycheck, leaving them in debt for an average of five months.
“Kansas payday loan places are now roughly three times what they are in states that updated their laws and protected consumers heavily,” said Kravitz. “They did this by demanding affordable installment loan structures, by lowering prices and making sure there were no unintended uses of state law or legal loopholes.”
Kravitz recommended that Kansas follow the Colorado route. There, lawmakers and stakeholders reached a middle ground by effectively prohibiting the two-week installment payment and replacing it with a six-month installment loan with affordable installments.
Colorado saw the cost of borrowing fall 42%. Ohio and Virginia have taken a similar path since then, and the repayment cost has dropped to 4% of the borrower’s next paycheck.
John Nave, executive vice president of the Kansas AFL-CIO, said his organization is keen to address the issue as it affects union members as well.
“While many of them live well, they can also get into financial trouble in this payday loan arena,” said Nave. “We have to push it really hard in the next session.”