TOPEKA – A consumer finance expert recommends that Kansas reform payday loans that could save consumers more than $ 25 million a year while maintaining access to credit.
These loans have come under criticism in states across the country, with some going so far as to ban them. The data suggests that while the majority of those who access these loans are white, African Americans are disproportionately affected.
TiJuana Hardwell, a community organizer in Wichita, shared her personal experience of the predatory nature of the current loan structure with the Kansas Commission on Racial Equity and Justice economic subcommittee on Thursday. She recalled that her mother found herself caught in a cycle of loans and repayments to support Hardwell and his six siblings after a divorce.
Every payday, after cashing her work check, her mother drove to pay off the loan, 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.
“When we talk about a system, it has to be dismantled,” Hardwell said. “It’s something that I willingly rally people around. I want to educate them. I also want to make sure these companies are accountable for how they offer these loans.”
A Kansas payday loan of $ 300 will often result in 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 to what lenders can charge.
Gabe Kravitz, consumer finance expert for Pew Charitable Trusts, said lines of credit for small amounts can be beneficial if properly structured, but in Kansas conventional payday loans do more harm than good. . He said the two-week loans offered by many lenders typically take a third of the borrower’s next paycheck and leave them in debt for an average of five months.
“Payday loan locations in Kansas are now about three times higher than in states that have updated their laws and heavily protected consumers,” Kravitz said. “They did this by demanding affordable installment loan structures, driving down prices and ensuring that there were no unintended uses of state law or loopholes in the law. . “
Kravitz recommended that Kansas go down the Colorado path. There, lawmakers and stakeholders reached common ground by effectively banning the two-week payment and replacing it with a six-month installment loan with affordable payments.
Colorado has seen loan costs drop 42%. Ohio and Virginia have since followed a similar path, and repayment costs have fallen to 4% of the lender’s next paycheck.
John Nave, executive vice president of the AFL-CIO of Kansas, said his organization has taken an interest in the issue because it affects union members as well.
“Even though a lot of them make a good living, they can also have financial problems in this area of payday loans,” said Nave. “We have to push this really hard this next session.”