Regulate payday loans
June 19, 2006 - Wichita, Kansas
If you wanted evidence of the kind of money payday lenders are making -- and are willing to shell out to protect their highly lucrative industry in Kansas -- look no further than the surreal scene that unfolded in Wichita earlier this month.
A public meeting sponsored by the Sunflower Community Action group to raise consumer awareness about the dangers of getting these short-term, high-interest loans was crashed by hundreds of people bused in by LoanMax, a national payday lender with outlets in Wichita.
Turns out LoanMax paid each of these "supporters" $100, and gave them T-shirts and free box lunches as well, in exchange for showing up at the meeting as warm bodies for the industry.
Some returned the money, took off the shirts and left after finding out how they were being used.
The tactic reveals just how far LoanMax and other payday and car title lenders will go to protect their cash-cow businesses, which give people short-term cash loans, typically over two weeks, until their next payday.
Payday lenders say there is a legitimate role for their services, that they extend loans to credit risks when no one else will.
That might be true in some cases. But the effective annual interest paid on the typical loan is almost 400 percent -- a crushing burden for many borrowers, who find themselves in a vicious cycle of debt with no way out.
Many desperate borrowers take out multiple loans to keep their heads above water -- as many as 15 or more, say local credit counselors -- and they're sinking in a sea of debt.
A legislative solution is called for to protect the most vulnerable consumers from being exploited.
One good idea being pursued by state Rep. Oletha Faust-Goudeau, D-Wichita, and other lawmakers would limit the total number of loans someone can receive. (Under current law, a person can't have more than two outstanding loans with a single lender -- but a payday borrower can avoid this restriction by simply going to another of the 60-plus payday outlets in Wichita and getting a new loan.)
Moreover, payday lenders should have to permit their customers to pay off bad loans over time, in installments, and to work with consumer credit counselors.
A statewide electronic database, like the one that integrates traditional lenders, is also needed to keep track of payday lenders and borrowers.
True, borrowers must take personal responsibility for their financial decisions.
But payday customers are often facing an economic crisis. That tends to skew judgment. Lenders "are preying on people who can't help themselves," points out J.J. Selmon, a Sunflower organizer.
That's why lawmakers must do something to protect their most vulnerable constituents.
The Wichita Eagle, Randy Scholfield, for the Eagle's Editorial Board
Also Related to this Story
Jake Lowen is the person who positively confirmed that LoanMax paid its supporters. Jake has an audio/video piece about this event on his Web site, JakeLowen.com titled "The $50,000 Mistake".
Related Stories - Kansas
- Legislator targets payday lenders [December 11, 2006]
- Loan shops cash in on the suburbs [September 5, 2006]
- Payday loan company pays $500,000 in back wages [August 18, 2006]
- Some overuse bank overdraft programs [June 26, 2006]
- Interview with JJ Selmon, Community Organizer - LoanMax Protest [June 24, 2006] -
- Regulate payday loans [June 19, 2006]
- Industry leaders, consumer advocates to meet about payday loans [June 9, 2006]
- Protesters target local loan businesses [June 4, 2006]
- Group to protest payday loans [June 2, 2006]
- Payday loan company QC Holdings reports drop in income [May 4, 2006]
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