The Kansas Catholic Conference plans to push for tougher state regulations on the payday loan industry on the grounds that the loans prey on the poor.
The loans, which are short term and have high interest rates, take advantage of people’s desperation, with a business model that is “designed around ensnaring people into a trap that they can never escape from,” said Michael Schuttloffel, executive director of the Catholic Conference, which represents the state’s bishops.
Many people who take out a payday loan get stuck in a cycle in which they have to keep taking out more loans to pay back the first, he said.
“We just think it’s bad for society,” Schuttloffel said.
Whitney Damron, a lobbyist who represents the Kansas Community Financial Services Association, said short-term loans of $100 can be life-saving for some of the people who use them.
“What do you want these people to do when the baby formula runs out?” Damron said. “... They don’t have an alternative.”
Kansas has some restrictions on payday loans. State statute caps short-term loans (seven to 30 days) at $500. It sets 15 percent as the maximum finance rate, meaning that a person will owe $15 for every $100 in loan money.
People may not have more than two loans at a time. Lenders must provide forms in both Spanish and English.
Still, Schuttloffel and others say the loans need better regulations. The annual finance rates can be as high as 390 percent in Kansas, according to the Consumer Federation of America.
Damron said it is misrepresentative to judge a one-month loan by a 12-month rate.
He noted that people have 24 hours to back out of the loans and said adults should have the right to enter into these agreements. He said it is typical business practice, though not law, for lenders to require that a person has a job and checking account before granting a loan.
“Our position has been this is a straightforward transaction. The consumer understands it’s capped at $500 … and our customers are satisfied with the product,” he said.
The Legislature convenes Jan. 12. Schuttloffel said his organization hasn’t drafted legislation and is still introducing lawmakers to the issue. But he is hopeful they can act on changes this year.
Lawmakers from across the political spectrum have expressed interest in tackling the issue. The topic got a hearing last year, but no legislation was put forward.
Sen. Steve Fitzgerald, R-Leavenworth, a conservative, said it’s important to distinguish between predatory loans and high-risk loans. “It’s a matter of attempting to find people who can be preyed upon … rather than just high risk loans,” he said. He is interested in studying the issue to make sure the law draws a clear dividing line.
Rep. Louis Ruiz, D-Kansas City, an outspoken progressive, expressed interest in a bill tightening regulations on payday loans.
“I don’t know where it’s going to come from or who’s going to bring it to the forefront, but I think there needs to be some regulation on that and also regulation on other industries that prey on people,” Ruiz said, pointing to car dealers who offer loans he called predatory. “They’re preying upon people who can’t afford anything different.”
Senate President Susan Wagle, R-Wichita, would not say whether she would support a bill. She said she’d have to see it first.
Schuttloffel said that he thinks the issue can be a rare example of bipartisanship in Topeka.
“We’re real hopeful we can work with people, left, right, in between and of all faiths,” he said.