Maria Galvan earned about $ 25,000 per year. She was not entitled to social assistance, but she still had difficulty meeting her basic needs.
“I would work just to be poor and broke,” she said. “It would be so frustrating. “
When the going got tough, the single mom and Topeka resident took out a payday loan. This meant borrowing a small amount of money at a high interest rate, to be repaid as soon as she received her next check.
A few years later, Galvan found itself strapped for cash again. She was in debt and garnishments were eating up a large chunk of her paychecks. She remembered how easy it was to get that previous loan: walk into the store, be greeted with a friendly smile, get money without being judgmental about how she could use it.
So she went back to payday loans. Again and again. It started to feel like a cycle she would never escape.
“All you do is pay interest,” Galvan said. “It’s a really unhealthy feeling, especially when you’re already strapped for cash to start.”
Like thousands of other Kansans, Galvan relied on payday loans to meet basic needs, pay off debts, and cover unforeseen expenses. In 2018, there were 685,000 such loans, worth $ 267 million, according to the State Bank’s Commissioner’s Office.
But while the payday loan industry says it provides much needed credit for people who have a hard time getting it elsewhere, others disagree.
A group of Kansas nonprofits say the loans are targeting people who can least afford triple-digit interest rates. These people come from low-income families, have exhausted their credit cards, or do not qualify for traditional bank loans. And these groups say Kansas not only could do more to regulate lending, it lags behind other states that have taken action.
Alternatives to payday loans
Last year, Galvan finally finished repaying its loans. She got help from the Kansas Loan Pool Project, a program run by Catholic Charities of Northeast Kansas.
Once Galvan applied and was accepted into the program, a local bank agreed to repay about $ 1,300 it owed to payday lenders. In return, she took out a loan from the bank for the same amount. Interest was only 7%.
Now that she’s out, Galvan said, she’ll never come back.
She doesn’t have to. Making payments on this bank loan helped build her credit rating until, for the first time, she could borrow money for a car.
“It has been a huge achievement,” she said, “to know that I have this need and that I can meet this need on my own.”
The project has so far paid off $ 245,000 in abusive loan debts to more than 200 families.
Claudette Humphrey is leading the original version of the project for Northern Kansas Catholic Charities in Salina. She says her program has been able to help about 200 people by paying off more than $ 212,000 in debt. But it couldn’t help everyone.
“The number one reason, always, why we have to turn people away,” she said, “is simply because we have a limit.”
People are only eligible for the Kansas Loan Pool Project if they have less than $ 2,500 in payday debt and the means to repay a new low-interest loan from the bank. The program doesn’t want to put people further in the hole if they are also struggling with debt from other sources, Humphrey said.
“Sometimes even if we paid for this they would still be upside down in so many other areas,” she said. “I wouldn’t want to place an additional burden on someone.”
Humphrey doesn’t think his program is the only solution. In his view, it should be the responsibility of lawmakers to protect payday loan clients the same way they protect all consumers – by regulating payday loans like traditional bank loans.
“Why are these companies not subject to the same standard? ” she said. “Why, then, are payday lenders and title lenders allowed to punish them at such an astronomical interest rate for not being a good risk?” “
Catholic Charities is just one of the nonprofits calling for tougher rules. Coalition members include churches and community organizations, said Shanae ‘Holman, an organizer of Topeka JUMP, the group leading the campaign.
“There are other states that have guidelines in place that sell you how much income… what percentage of your check can go towards a payment,” Holman said. “These are the types of regulations that we would like to see”,
She wants Kansas to require longer loan periods so borrowers aren’t penalized when they can’t meet short payment deadlines.
Currently, the maximum term for a payday loan in the state is 30 days. In comparison, borrowers of small loans in Colorado must have at least six months to repay them, with no maximum loan term. In Ohio, borrowers have 91 to 365 days to repay a loan. If the loan term is less than 91 days, the repayment must be less than 7% of the borrower’s net income.
Both states have set annual interest rates close to 30%. Some states regulate payday loans the same way as other consumer loans. But Kansas is like most other states, allowing annual interest rates of 391%. This means that a loan of $ 500 over two weeks at 15% interest can cost a client almost $ 2,000 over the course of a year.
The group plans to work with lawmakers during next year’s session in Topeka.
This is the first time that such a large group has organized around the cause, said Jeanette Pryor, a Kansas Catholic Conference lobbyist. Payday loan reform is a recurring topic at the Statehouse, she said, but convincing lawmakers to increase regulations is difficult.
“This is something I heard at the beginning. “Why can’t an adult make a rational decision for himself? Why do we have to legislate this? ‘ She said. “The bigger the coalition, the more opportunities there are to educate legislators. “
Nick Bourke is the Director of Consumer Credit at Pew Charitable Trusts. He is pushing for reform of payday loan laws. He said reform was long overdue in Kansas, which has not updated its payday loan laws since 2005.
“It’s possible to give small credit, even to people with damaged credit histories, for a lot less money than what the Kansans are currently paying,” he said. “But Kansas laws are outdated.”
In 2014, Pew Charitable Trusts conducted research on the use of payday loans in each state. The organization found that 8% of Kansas residents had used payday loans in recent years, higher than the national average of 5.5%. The typical income for a borrower was $ 30,000.
The office of State Bank Commissioner David Herndon, who regulates lending and penalizes lenders for breaking the rules, declined to be interviewed in person or by phone but responded to questions by email. Bank deputy commissioner Tim Kemp said the agency only enforces existing law and does not weigh in on proposed changes.
Attorney General Derek Schmidt’s office, which handles consumer complaints about payday loans, has refused several requests for interviews and information.
A credit option
Payday lenders say they provide affordable credit to the large proportion of Americans who don’t have enough cash to cover an emergency expense. The Community Financial Services Association of America, an industry group for low dollar lenders, declined an interview due to scheduling conflicts but emailed a statement.
“Small loans are often the cheapest option for consumers,” CFSA President D. Lynn DeVault said in the statement. “Particularly in relation to bank charges – including overdraft protection and bad checks – or unregulated offshore internet lending and late bill payment penalties. “
Some Kansas clients, like Topeka’s Keri Strahler, say the loans help.
Strahler does not work and most of his income comes from Social Security disability insurance. This year, she took out three payday loans to cover her medical debts and said she had no difficulty paying them back.
She knows that many people see loans as predatory. But for Strahler, borrowing eased more stress than it caused. Her credit cards were already at their peak and the loans helped her avoid being sued or having to sell her furniture to cover her debt.
“I chose payday loans because I wanted them to be processed immediately,” she said. “It has been very helpful.”
Humphrey of Catholic Charities recognizes that loans can be helpful for some clients. The question is whether the state can prevent others from being exploited.
“I’m not saying there’s no room for them,” Humphrey said. “(But) is there a better way to do what they’re doing so that it doesn’t devastate families? “
Nomin Ujiyediin reports on criminal justice and welfare for the Kansas News Service. Follow her on Twitter @NominUJ or send an email to nomin (at) kcur (dot) org.
The Kansas News Service is a collaboration of KCUR, Kansas Public Radio, KMUW, and High Plains Public Radio focused on the health and well-being of Kansans, their communities, and civic life. Kansas News Service stories and photos may be republished by media at no cost with appropriate attribution and a link to ksnewsservice.org.