If you take out payday or other short-term loans, a proposal before Kansas lawmakers would cap the annual interest rate at 36 percent.
The limit would help borrowers caught in a cycle of debt and unable to get out, proponents say.
Opponents contend the bill would effectively kill the payday loan industry and curtail a source of credit used by numerous Kansans.
Most significantly, the bill would set a 36 percent annual interest rate.
But it would also limit payday lenders to one outstanding loan to a borrower of less than $500. Lenders could charge a maximum monthly fee of 5 percent of the original loan principal or $20, whichever is less.
The bill potentially holds consequences for thousands of Kansas borrowers and hundreds of lenders. Payday and title loans are provided at more than 300 locations by 66 companies in the state, according to the Kansas Office of the State Bank Commissioner.
Kansas had a combined payday and title loan volume of nearly $350 million in 2016.
A special legislative committee met Wednesday to consider House Bill 2267 but made no recommendation. Instead, lawmakers suggested the Kansas Office of the State Bank Commissioner should report to the Legislature early next year on possible federal regulations.
The Legislature can still take action, however. The bill remains in the House Federal and State Affairs Committee, which could take it up in the coming session that begins in January.
Right now, payday loans in Kansas carry excessive fees, said Alex Horowitz a researcher at the Pew Charitable Trusts. The typical annual percentage rate, or APR, for a payday loan in Kansas is 391 percent, he said.
In other words, someone who borrows $300 and is in debt for five months – the average amount of time a payday borrower is in debt during the year, according to Pew – would repay $750.
“Pew’s research shows that small amounts of credit can help people who are struggling to make ends meet, but only if structured appropriately to be affordable at lower prices,” Horowitz said.
The current law is already simple, said Whitney Damron, a lobbyist representing the Kansas Consumer Financial Services Association. The association is composed of payday lenders.
The consumer can easily determine how much they want to borrow, when repayment is required and what the loan will cost, he said, contending House Bill 2267 would actually make borrowing more complicated.
“Consumers of payday loan lenders are qualified to make financial decisions for themselves without government interference,” Damron said. “Who is to say whether it is better for a borrower to take out a payday loan to meet a short-term need vs. the consequences of not taking out a loan?”
Kansas already has some of the strongest pro-consumer protections, Damron said. Those include making forms available in Spanish, no criminal prosecutions for bad checks, and limiting customers to two outstanding loans.
The real purpose of House Bill 2267 is to eliminate short-term lending, said Julie Townsend, with payday lender Advance America.
“Advance America – and all regulated short-term lenders – could not offer our service under the proposed rate and term structure while still covering our basic operating expenses like wages, rent, utilities, security and supplies,” Townsend said.
Claudette Humphrey, director of stabilization services for Catholic Charities of Northern Kansas, oversees the Kansas Loan Pool Project. The program helps clients replace high-interest payday and title loans with traditional loans at lower interest rates.
Her clients often report high interest debt as harming their ability to keep up with rent, utilities and other expenses, she said. Half of the program’s 30 current clients live on fixed incomes.
Humphrey has also lived the life of a payday borrower.
“What I believed would be a short-term loan of $500 for a necessary vehicle repair resulted in my eventually having to get a second payday loan to try to stay above water,” Humphrey said.
Those most adversely affected by payday loans are the working poor and those on fixed incomes, she said, adding, “It is time to do what is necessary to stop the continued predatory practices” of these lenders.