Kansas Payday Loan Reform Gets Another Blow
The effort to change state payday loan laws has really not made much progress, if any, over the past few years.
But a reform bill heard last week, backed by consumer advocates and some lenders, may be the best chance – albeit small – that payday loan reform has seen in Kansas in some time.
“He has more positives than any I can remember seeing before,” said Rep. Jim Kelly, R-Independence, who chaired the Kansas House Financial Institutions Committee for many years. “It’s one that I think is more achievable than some of those who have come over the past few years that I’ve been here.”
Payday loans are relatively small amounts of money loaned at high interest rates, in the hope that they will be paid off on the next paycheck.
Critics have described these loans as predatory against low income people who are under duress as some may end up with high interest debts. The industry champions them as a necessary option that customers want and demand.
Aside from the information hearings, the last time a real bill on this issue was tabled was in 2017. Kelly had strayed from payday lending legislation, even as late as l ‘last year.
Depending on how things go, there might be a change in tone.
“As a committee… we are committed to seeing if we can find some type of compromise between this year and next year,” the representative told Topeka Capital-Journal. Payday loan companies and others “have also given us a sign that they are ready to sit down with us and see if we can make a difference.”
Part of the reason this bill is more attractive is that it is already a compromise between lenders and consumer advocates, said Nick Bourke, director of consumer finance at Pew Charitable Trusts. .
Currently, payday loans cannot exceed $ 500, can have a maximum term of one month, and must be repaid in one installment. Interest rates and other terms are set between the borrower and the lender. It’s a structure that critics say leads to repeated borrowing and inability to repay.
“That current average interest rate on a payday loan is 391%. 391%! Kansas Interfaith Action’s Moti Rieber said in written testimony. “In our system, we expect lenders to charge interest, but the unregulated and astronomical interest rates charged by the predatory lending industry fall within the definition of ‘usury’. “
Bill 2189 would establish a new structure where payments are made in installments over a minimum period of three months, “by far the safest structure for consumers,” said Tony Huang, CEO of Possible Finance.
The bill also sets a 36% cap on interest rates, and in return, credit companies can increase their fees and lend more than usual. There could be a maximum monthly charge of $ 30 and up to $ 25 in sales charges. You can lend up to $ 2,500, much more than other states.
“Repayment over time and installments is at the heart of this reform. And once you allow the borrower to repay in affordable installments over time, you also authorize larger loans,” Bourke said.
This 36% rate is also an incentive for installment loan companies such as Possible Finance to come to Kansas. Small installment businesses under current law are required to offer interest rates of 21% or less.
“Kansas … charges extremely low rates for the most secure type of loan – installment loans,” Huang said. “HB 2189 would harmonize these statutes and generate enough revenue for us to operate profitably, much like we do in Ohio. “
But a few payday loan companies like Speedy Cash still claim that this new structure and new cap could bankrupt them.
“HB 2189 eliminates the payday loan product and provides dollar loans under $ 2,500 only to the most creditworthy borrowers of the major borrowers. (The new structure) for subprime borrowers is not a viable business model, ”said Melissa Soper, representing Speedy Cash. .
She mentioned that for states that have passed similar reform, Speedy Cash has had to withdraw products or operations from those states.
Others opposed the proposed reform on the grounds that it was insulting to clients’ decision-making.
“Kansas consumers are qualified to make financial decisions for themselves without government interference. Who can say whether it is better for a borrower to take out a loan to meet a short-term need versus the consequences of not taking a loan? Said Whitney Damron of the Kansas Community Financial Services Association.
Bourke dismissed these concerns as not wanting more market competition from installment loan companies.
Kelly, the chairman of the committee, said he had no interest in disrupting the payday lending industry.
He said he would go for a best of both worlds option, where there is the structure of the bill installments and the current structure under which payday lenders operate (or at least one that payday lenders are operating under). would be comfortable).
“My concern is that this is not a product that some people might claim,” Kelly said. “If there is no other avenue for them, then you go into lane lending and find yourself in situations that are not favorable.”
If the reform ever passes, it will likely be the next session, when this year’s unsuccessful bills are postponed, rather than this session. This hearing is a good first step, Kelly said.
“There has rarely been a real hearing” on this subject, he added. “We had a real hearing this year that would put us in a position to seek a compromise, and which could gain support and try to move something beyond the hearing.”