Payday Loan Times

Two bills were introduced to the Kansas state legislature Feb. 15 aimed at restricting and regulating predatory payday loan lending in the state.

House Bill 2244 proposes to restrict no fax payday advance lenders from providing multiple loans to a borrower with two or more outstanding loans and to significantly lower the annual percentage rates of such loans.

HB 2245 addresses auto title loans. The bill proposes limiting the APR on title loans to 36 percent, which is the current Kansas restriction on fixed-term loans.

“I think for a number of states, the honeymoon is kind of over with payday lending,” said Holly Petraeus, the Senior Program Consultant for the Better Business Bureau’s Military Line, a program providing consumer education and advocacy for service members and their families.

Petraeus is also a military family member. Her husband, Gen. David Petraeus, is the current commander of Multi-National Forces-Iraq and former commander of the Combined Arms Center and Fort Leavenworth..

Her concern about fast cash advance lending to military members and their families led to chairing a roundtable discussion in early February convened by Kansas Attorney General Paul Morrison. Morrison intends for the roundtable’s recommendations to be added to HB 2244 as an amendment.

The two bills have several steps to go before becoming Kansas law. However, as Petraeus pointed out, several states and the federal government are taking a close look at predatory lending.

Payday lending is a small, short-term loan, usually for less than $500. The borrower pays a fee and is expected to pay the loan back in full, in two weeks. Petraeus said when quick payday loan lending was first established, it was presented as a beneficial service to people who just needed a little bit of help and couldn’t, or didn’t need to, qualify for a larger loan.

“Unfortunately it has turned out to be something else,” Petraeus said. “If you didn’t have $200 today, you are not going to have $200 extra in two weeks to pay it back.”

Therefore, borrowers take the cash loan out again and pay another fee. This can lead to a cycle of borrowing that can cause serious financial trouble. A report by the Center for Responsible Lending published in November said 90 percent of people who borrow from payday lenders borrow five or more times per year and 62 percent do so 12 or more times per year.

In 2005, Kansas had 358 payday lending stores. The average loan amount in Kansas was $262 and the average fee 15 percent. The 15 percent fee equals 391 percent APR. So a $262 cash advance loan in January could cost a person $1,286 by the end of the year.

“Again, it wouldn’t be an issue if you went in and borrowed it once and walked away,” Petraeus said. “But the average customer doesn’t.”

Petraeus said payday lenders will argue they are providing a service and fulfilling a need.

“I would argue they are creating an appetite for easy money,” Petraeus said.

SOURCE: The Fort Leavenworth Lamp