eKC feature
July 27, 2007

 


Efforts continue for regulation
of the payday loan industry

by Tom Bogdon

When state Rep. John Burnett, a Kansas City Democrat, mentions that his bill to regulate the huge and growing payday loan industry in Missouri would cap interest rates at 36 percent APR (annual percentage rate), the usual reaction from people is “That’s too high!”

“What people don’t understand,” Burnett told eKC online, “is that current payday loan interest rates in Missouri average 422 percent APR with typical rollovers, and that the maximum rate can go as high as 1,950 percent APR. I think that is outrageous and should be illegal.”

Burnett, whose district includes part of Old Northeast and part of Downtown Kansas City, has introduced his bill, which sets a maximum interest rate of 36 percent and prohibits rollovers, in each of the last four sessions of the General Assembly. The measure never got out of the Finance Committee.

“I’ve had one real hearing, and it was very abbreviated,” Burnett explained. “There was one committee work session which wasn’t even a hearing. I was given eight hours notice so I wasn’t able to get people to come to Jeff City to testify. It was a three-hour hearing, but two and a half hours of it was taken up by payday loan lobbyists.

“When the chairman, Mike Cunningham, said to me, ‘Do you have anything to say, Mr. Burnett?’ I said, ‘Yeah, we used to put people in jail for loan sharking,” Burnett said. “And I told them, ‘There’s a reason the bible says this is morally wrong — because it takes unfair advantage of people. Usury is stealing.’

“It became very quiet in that room,” Burnett continued. “Then I talked for about 10 minutes about the details of my bill. But I didn’t want to talk too long because I knew the attorney general’s staff person was going to speak. He started out by saying, ‘1,950 percent — that’s what you’re allowing these payday loan companies to charge.’ He talked about how (Attorney General) Jay Nixon is so strongly against this and supports my bill…”

State Rep. John Burnett, Democrat from Kansas City, has introduced a bill to cap payday loan interest rates in the last four sessions of the Missouri General Assembly. The bill has received one committee hearing. “We used to put people in jail for loan sharking,” said a frustrated Burnett.

U.S. Rep. Emanuel Cleaver, also a Kansas City Democrat, serves on the House Financial Services Committee. Cleaver and some other members of Congress support a 36 percent APR at the federal level. Congress did take action in this year’s Defense Bill, capping at 36 percent the interest rate that can be charged for payday loans outside military installations. President Bush signed the bill into law..

Cleaver, the second-ranking member of the Congressional Black Caucus, notes that while payday loans are a community-wide problem, predatory lenders often concentrate in poor, African-American neighborhoods.

“African-American neighborhoods have three times as many payday lenders per capita as white neighborhoods,” Cleaver told eKC online. “Despite what the industry claims, 99 percent of payday loans are made to repeat borrowers. These are not ‘one-time’ emergency loans. They have become subsistence income at a gouging interest rate.

“These are not banks and there are currently very few protections for borrowers who get in over their heads,” Cleaver continued. “Yet, the average borrower takes out nine loans a year once they get into the cycle. Payday loans cost American families a staggering $3.4 billion..”

The Missouri Division of Finance, in a 2007 report covering the timeframe from Oct. 1, 2005, through Sept. 30 2006, stated that 1,545 Payday Loan licenses were issued during calendar year 2006. Lenders closed and opened locations throughout the year with 1,262 being the approximate average number active at a given time. There were 1,198 licensed payday lenders in January 2005 and 912 as of January 2003.

According to the Division of Finance, the total number of payday loans made during the reporting period exceeded 2.87 million. (For purposes of the survey, a renewal or rollover was treated as a separate loan.) The average loan was $274.72 and the average interest rate was 422.26 percent. This would result in an interest/fee of $39.05 for a 14-day loan.

Besides being a heavy burden for individuals and families forced by circumstances to take out a payday loan, the proliferation of these operations in a city can be a sign of urban blight. That is why former Kansas City Councilman Alvin Brooks pushed a moratorium on new business licenses for these businesses.

Part of the justification for the moratorium was that the Missouri General Assembly could take action in its 2007 session to regulate payday lenders more stringently. That did not happen, of course, because of the payday loan industry’s heavy clout in the Show-Me State.

However, the newly elected Kansas City City Council, led by 4th District Councilwoman Jan Marcason, currently is studying ways the city government can use its zoning and licensing powers to limit the proliferation of payday loan offices Some have even set up shop in otherwise healthy neighborhoods such as along south Wornall Road. Marcason estimates that there may be 200 or more payday loan outlets now operating in the city.

Marcason sponsored a community meeting on the subject of payday loans in early July at the Central Presbyterian Church, Armour Boulevard and Campbell Street. Speakers at the meeting, attended by about 50 persons, included representatives of groups such as the Salvation Army, Catholic Charities and others who described the plight of families and individuals victimized by payday lenders. Several spokesmen for payday lenders told of the service they provide to cash-strapped people who don’t think they have any other means of obtaining a loan.

The only actual payday borrower who spoke at the meeting was a middle-aged black woman who did not give her name because, she said, she had defaulted on several payday loans. The woman had written a rap poem about the experience and performed it at the meeting.

“We have limitations on how we can impact the industry,” Marcason said after the meeting. “But we can make it more difficult for them to proliferate.”

On July 26, Marcason introduced an ordinance that places zoning restrictions on new payday loan locations. According to Assistant City Attorney Maggie Moran, the 31-page ordinance would require that new payday loan outlets would be required to obtain a conditional use permit through the Board of Zoning Adjustment, which would conduct a hearing on the matter.

Moran said the ordinance would require that new payday loan offices be no closer than one mile from any other such businesses. Further, new payday loan outlets could be no closer than 1,000 feet from churches, schools, senior living centers, museums and package liquor stores.

Susan Borge, Marcason’s administrative assistant, said the councilwoman plans to introduce a second ordinance that would regulate signage and possibly require that a large printed notice specifying the interest rate charged be posted in the payday loan office. Borge said under this ordinance payday lending would be made a regulated industry, similar to bars and taverns, and package liquor stores.

These ordinances were assigned to the Finance Committee.

Fourth District Kansas City Councilwoman Jan Marcason has introduced an ordinance to regulate payday loan businesses through zoning restrictions.

On the state level, Burnett plans to reintroduce his ordinance to cap payday loan interest rates and prohibit renewals or rollovers, and state Sen. Jolie Justus, a Kansas City Democrat who attended the meeting at Central Presbyterian Church, plans to introduce a similar bill in the upper chamber.

“I’m going to be working with Rep. Burnett and others between sessions, and I plan to look for alternative sources for loans, such as credit unions, for people who need an emergency loan to tide them over,” Justus said, noting that the default rate on payday loans is actually fairly low.

Attorney General Nixon, who has pressed for predatory lending reform for several years, told eKC online that he has no intention in letting up.

“Fees and interest on payday loans cost Missourians more than $317 million a year, meaning many families have to make very difficult decisions about paying for food, rent and other bills,” Nixon said. “We continue to lag behind other states, which are tackling the problems head-on.”

Jerry Young, director of the office of human rights for the Catholic Diocese of Kansas City-St. Joseph, noted that a concerted effort on behalf of predatory lending reform was made in 2002, when Young was an organizer for the CCO, a faith-based civic organization.

That reform effort, Young recalled, was led by the late state Senators. Harry Wiggins and Ronnie DePasco, but fell short of capping interest rates or prohibiting loan rollovers because of stiff resistance from payday loan lobbyists. However, the reform coalition did succeed in legislating mandatory industry reporting through the Division of Finance and prohibiting criminal prosecution in payday loan defaults.

“It’s time to revisit the issue and get the other half of the loaf,” Young said. “We’ve got all the data on what the industry does to the community, and John Burnett’s bill is exactly what we need to protect the working families in Missouri.”

Norma Collins, associate state director for advocacy for the American Association of Retired Persons (AARP), also was active in the 2002 campaign for payday loan reform. But AARP and the Consumer Federation of America were so dissatisfied with amendments to the payday loan reform bill that they urged Gov. Bob Holden to veto it, but the governor signed it anyway.

Collins said the AARP, which has 790,000 members in Missouri with an activist base of 10,000, would be ready for another reform effort in 2008 if the bill caps interest rates and prohibits loan rollovers, both of which the Burnett bill accomplishes.

Tom Bogdon can be contacted at tjbogdon@yahoo.com.


              
              
                 

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