TOPEKA — A consumer finance expert is recommending Kansas make payday loan reforms that could save consumers more than $25 million per year while still maintaining credit access.
These loans have come under fire in states across the country, with some going as far as to ban them. Data suggests that while the majority of those accessing these loans are white, African-Americans are disproportionately impacted.
TiJuana Hardwell, a community organizer in Wichita, shared Thursday her personal experience with the predatory nature of the current loan structure with the Kansas Commission on Racial Equity and Justice Subcommittee on Economics. She recalled that her mother became caught in a cycle of loans and repayments to support Hardwell and her six siblings after a divorce.
Each payday, after cashing her check from work, her mother would drive to pay back the loan and then immediately take out another loan to ensure they had enough money to live on. Sometimes, she would even take loans out from two lenders at a time.
“When we talk about a system, it has to be dismantled,” Hardwell said “That is something that I voluntarily rally people around. I want to educate them. I also want to ensure that these companies do have accountability with how they offer these loans.”
A payday loan in Kansas of $300 will often incur about $450 in fees for a total of $750, according to Pew Charitable Trusts. Long-term loans have grown in popularity in Kansas but there is no limit on what lenders can charge.
Gabe Kravitz, a consumer finance expert for Pew Charitable Trusts, said credit lines for small sums can be beneficial if structured properly, but in Kansas, conventional payday loans do more harm than good. He said the two-week loans many lenders offer typically take a third of the borrower’s next paycheck and leave them in debt for an average of five months.
“The payday loan places in Kansas today are approximately three times higher than in states that have updated their laws and strongly protected consumers,” Kravitz said. “They’ve done that by requiring affordable installment loan structures by bringing down the prices and ensuring that there are no unintended uses of state statute or loopholes in the law.”
Kravitz recommended Kansas follow the path taken by Colorado. There, lawmakers and stakeholders reached a middle ground by effectively prohibiting the two-week installment and replacing them with a six-month installment loan featuring affordable payments.
Colorado saw loan costs drop by 42%. Ohio and Virginia have since followed a similar path, and repayment costs have decreased to 4% of the loanee’s next paycheck.
John Nave, executive vice president of the Kansas AFL-CIO, said his organization has taken an interest in addressing the issue because it affects union members as well.
“Even though a lot of them make a good living, they can also get themselves into financial trouble in that payday loan arena,” Nave said. “We’ve got to push that really hard this next session.”