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Loan shops cash in on the suburbs

September 5, 2006 - Kansas City, Kansas

Two years ago, you couldn't find a single payday loan company at 95th Street and Antioch Road in central Overland Park.

Today there are three, on separate corners.

"Those are the kinds of stores that you see in parts of town you don't want to live in," said Lori Olson of Overland Park, a suburb recently ranked by Money magazine as the sixth-best place to live.

With increasing frequency, payday loan stores -- offering short-term loans at high interest rates -- are surfacing in suburbs across the country.

Experts say that the businesses, after saturating low-income neighborhoods, are expanding into moderate-income communities where more families are piling up debt.

In Kansas, their proliferation has been fostered by a new law increasing the fees for loans and making short-term lending more profitable.

It's a troubling trend for some elected leaders, who think the businesses prey on poor customers and cast the wrong image for their city. Like several other cities across the country, Overland Park is moving to limit the growth of payday loan shops.

"I don't believe it's the type of development that we want to see in Overland Park," said City Councilman Terry Goodman. "It portrays an image of an area in decline."

The industry takes offense at that notion, saying it offers a legitimate service to people looking for alternative banking arrangements.

"Let me tell you right now, we don't attract trashy people," said Wes York, who owns four payday loan and check-cashing stores in Johnson County. "You have to qualify for that loan."

An influx

While a dense concentration of payday loans and check-cashing services are found in low-income areas, the vast number are now in moderate-income neighborhoods, according to a recent report by the Brookings Institution in Washington, D.C.

Kansas City suburbs have seen the influx.

The combined number of payday loan stores in Blue Springs, Lee's Summit and Liberty has more than doubled since 2001, Missouri state regulators say.

The upsurge is more dramatic on the Kansas side. Olathe, Overland Park and Lenexa now have 24 payday loan stores -- including 17 permitted since January 2005.

"They just seemed to start popping up overnight," Goodman said.

The Brookings report pointed to Chicago as an example of the national phenomenon: More than two-thirds of that area's payday loans and check-cashing services were in neighborhoods with yearly incomes between $30,000 and $60,000.

The trend was replicated in most of the 12 metro areas examined in the report, including Atlanta, Pittsburgh, Denver, Seattle and Baltimore.

Matt Fellowes, a Brookings scholar, said middle-income households are looking for new ways to borrow money because wages are falling behind inflation and many have maxed out their credit cards.

"You've seen credit-card debt expand significantly over the past decade, and you're also seeing the market for alternative debt like payday loans expand because of that," he said.

Other experts say it's important to analyze what's going on in the moderate-income neighborhood where payday lenders are locating. They say other factors like divorce or employment rates also should be examined.

In Kansas, however, another issue may be at play.

In 2005, the Kansas Legislature increased the interest allowed on payday loans to 15 percent on a $500 loan.

Under the old law, stores could charge 15 percent only on the first $100, 7 percent on loans between $100 and $250 and 6 percent on loans from $250 to $500.

The change in the law has clearly made an impact on the number of payday loan stores in Kansas, regulators say.

"The increase in the fee was essentially enough that some of the national lenders wanted to move into the state, and I think that's what you're seeing in the proliferation of locations," said Kevin Glendening, administrator of Kansas' Uniform Consumer Credit Code.

But Glendening suggested another theme also is at work.

"Common sense tells me that there is a direct correlation to the fact that Americans are ever increasing their overall level of debt and more and more people are living check to check and/or living beyond their means," he said.

Supply and demand

Payday loan executives say they go where there's demand.

"If that's in Overland Park, that's in Overland Park. If it's in Timbuktu, then we go there," said Tom Linafelt, spokesman for QC Holdings in Overland Park.

QC runs 558 payday loan stores nationwide.

The industry says its clients should not be stereotyped.

York said his customers must be employed, have a checking account and a work, home or cell phone.

Linafelt said his company's average customer earns $25,000 to $50,000 a year.

"We know many of our customers benefit from our products and services by avoiding things like bounced-check fees and late-bill payment fees," Linafelt said.

Industry officials say they keep their stores in good shape, employ residents and contribute to the tax base.

Regardless, cities across the country are trying to restrict the growth of the businesses.

In other states cities have limited how close the stores can be to one another and to residential neighborhoods.

Overland Park is now writing new rules similar to what has been adopted in other cities. Their goal: to preserve the city's image of manicured parks, good schools and strong shopping opportunities.

"I don't see Overland Park as an intensely urban area with your predominant tenant mix being B-level businesses," Goodman said.

News Source

Kansas City Star, Brad Cooper, Staff Writer

QC Holdings, Inc. (NASDAQ: QCCO)

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