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Legislator seeks to cap payday loan interest 12/11/06

Legislator seeks to cap payday loan interest


WICHITA -- When North Carolina lawmakers capped the amount of interest payday loan companies could charge their customers for short-term loans, the industry went bust in that state.

A Wichita legislator is hoping a measure she plans to introduce in the upcoming legislative session -- which could include an interest rate cap similar to the one that drove the payday loan industry out in North Carolina -- would make "predatory lending” less lucrative in Kansas.

"We are looking at doing two things,” said Melody McCray-Miller, D-Wichita. "One, we're going to work on tightening up the actual statute that speaks to payday lending. And we'll look at capping the amount that an individual can receive. I am still in the process of evaluating how effective a 36 percent rate cap on what I would call all predatory lending would be.”

Sunflower Community Action, a grass roots community group seeking tighter restrictions on payday lending, backs Miller's efforts.

"Whatever they're doing in North Carolina should be what's done everywhere,” said J.J. Selmon, community organizer for the group's northeast chapter.

In Kansas, a customer can borrow up to $500, with the lender agreeing to hold a postdated check until the borrower's next payday. The fee for the service typically is $15 per $100 borrowed.

But some customers take out a payday loan with one company to pay off a similar loan they have taken out from another. Sunflower and Credit Counseling Service, a nonprofit group in Wichita and Salina, say they have heard of customers with as many as 18 loans.

Supporters of the payday loan industry argue that many customers don't have access to short-term loans anywhere else, and that such loans provide a service to those who need fast cash.

Whitney Damron, a lobbyist for the Kansas Payday Loan Association, said people who are critical of payday loans are trying to take a choice away from customers.

He challenged Sunflower Community Action to find a way to provide short-term loans to customers, and said a 36 percent cap like that in North Carolina would force payday loan stores to close in Kansas.

Susan Lupton, senior policy associate for the North Carolina-based Center for Responsible Lending, said her state legislature allowed payday lenders to charge more than 36 percent interest during a four-year period from 1997 to 2001.

"That's when 1,000 shops came in,” she said. "The general assembly thought it would be an occasional product offered by check cashers.”

After the sunset deadline expired in 2001, payday loan companies in North Carolina could not make enough money with the 36 percent cap, she said.

"The payday lending business model is incredibly inefficient,” Lupton said. "They have to flip borrowers repeatedly to make any money. If held to a cap, it's just not going to be a profitable environment for them.”

Damron said the government shouldn't get involved in credit decisions for consumers any more than it should tell consumers how many credit cards or mortgages they should have.

Sen. Don Betts, D-Wichita, said he supports a cap on payday loan interest rates.

"People borrow $200, $300 and $500, and end up paying three times that amount back,” he said. "Will they ever get out of debt?”

[TexKan]

I think they are vultures - but I see the need for them as well - if they don't have these places - who gets the business??? The pawn shops. They are all makin a dime on the poor man livin outside his means - sometimes that outside your means can be a light bill or some bologna for the week. Don't know the answer but I don't like the cash checking stores either.

[BroncoFan]

Again, I don't like the govenment making decisions for me. Let me choose to use them, or not. I do agree that there should be a cap on the interest rate of the loans, as some places charge over 400%.

[WizardofOz]

I agree that it is good to have an option, especially when an emergency pops up and its too far from payday. I also believe that people, especially businesses, shouldn't prey on this. Capping the interest rate is a good step because the 100-400% some of them charge is outrageous. That is nothing more than loansharking, but having a business name to mask it.

[BroncoFan]