Residents from Eastern Jackson County are among those who this week added their voices to the debate about proposals to put limits on payday-and-title-loan businesses.
“We want strong rules,” Garland Land of Independence said as about 250 people rallied Thursday in Kansas City. That was just before a hearing on by the Consumer Finance Protection Bureau, a federal agency created after the banking crisis and sharp economic downturn of 2008-09.
The agency cannot limit interest rates that critics of the industry say can exceed 450 percent for small, short-term loans, but it is trying to impose new rules that would require payday lenders to verify a borrower's ability to repay a loan. Also, the number of times a loan would be rolled over – with interest and new fees – would be limited. Lenders also could only try to debit a borrower's bank account twice before having to reach out to that borrower and seek another means of payment instead of repeatedly trying to debit the account – even if it's overdrawn – racking up more bank fees and putting borrowers deeper in the financial hole.
Advocates of the rules say the industry depends on borrowers to roll over loans again and again, and the businesses themselves say the new rules would wipe out much of the industry.
“That's part of their business model,” Land said. “They expect people to default.”
He added, “So it just becomes a terrible cycle for them (borrowers), and they can't get out of it.”
Land said about 50 people from Independence went to Thursday's rally, where many wore blue T-shirts saying “We will not give up. #StoptheDebtTrap,” chanted such slogans as “Hey, hey, ho, ho, payday loans have got to go,” and carried signs with messages such as “I'm standing for a moral economy.”
Land said he got involved in the issue through the Eastern Jackson County Justice Coalition, which has focused on payday loans for several years. He also pointed to locally based alternatives to payday loans. For example, the Community Services League, where Land teaches a “How to Live on a Small Income” class, works with a small credit union to provide loans at much lower rates than payday or title lenders.
Clergy have been active in this movement, and the rally and comments at the hearing had frequent religious overtones. The Rev. Dr. Cassandra Gould, director of Missouri Faith Voices, cited the Scriptural admonition against exploiting the poor, and others echoed that idea. Land is a delegate to the Community of Christ World Conference now getting underway in Independence, and he's supporting a resolution declaring, he said, “that predatory lending is offensive to God.”
Others see it differently. State Rep. Paul Curtman, a Republican from Pacific, Missouri, said it's clear that some people have made bad choices in taking out payday loans, “but we should have the freedom to make those decisions.”
Curtman chairs the House Committee on Government Efficiency.
“I'm against bureaucracy passing 1,500 pages of rules,” he said.
Payday lenders have long argued that they fill a need for people who run into an unplanned expense such as car repair or a medical bill, as big banks have abandoned small personal loans and often won't deal with customers with poor credit.
“My company proudly provides people credit that makes people's lives better,” said Darrin Anderson, CEO of QC Holdings, based in Overland Park.
Under the proposed CFPB rules, he said, 70 percent of licensed lenders would leave the business, driving borrowers into the arms of what he repeatedly called “illegal, unlicensed lenders” who, he said, generate most of the industry's unfavorable media attention.
Anderson said the CFPB has to answer three questions: Why do so many people use payday lenders? Why do companies such as his report high customer satisfaction?
“And three, what will replace payday lending when the bureau regulates us out of business?”
Those from the lending industry said it's expensive to make small, risky loans and that balancing a cap on rates – 36 percent, the same as for credit cards, was frequently mentioned – with high customer satisfaction is not possible. They said that although they work with clients one on one, it's not feasible to do the level of financing checking – looking at a borrower's other payments and assessing the ability to repay the loan – that the rules would require.
“They don't expect that getting a $500 loan will have the same requirements as getting a mortgage,” said Kirk Chartier, chief marketing officer of Enova.
But the director of the agency, Richard Cordray, said borrowers are set up to fail. Four out of five loans are rolled over within a month, he said, and more than half end up in a sequence of 10 or more loans.
“Each time the consumer pays more fees and interest on the same debt,” he said.
That hurts consumers “by trapping them in debt they cannot afford,” he said.
His agency uses this analogy: It's like getting in a taxi for a ride across town and being taken for costly and virtually endless ride across the country.
Kansas City Mayor Sly James said the number of payday and title lenders has spun out of control – “In Missouri, there are more payday loan shops than Wal-Marts, McDonald's and Starbucks combined,” he said – and he criticized the interest and fees than can work out to 455 percent.
“It's not just incomprehensible,” James said. “It's obscene, it's immoral, and it ought to be illegal.”
Wade Henderson, president of the Leadership Conference on Human and Civil Rights, said this is one of the most important moral issues of the day and was among those at the event who said there's a racial aspect to the issue.
“... communities of color are still being targeted by predatory lending practices,” he said. The proposed rules are a “very strong, very important step in the right direction,” he added.
Industry representatives repeatedly stressed that people, especially those with poor credit and tight finances, need access to their services.
But Gaylen Carey, executive vice president of governmental relations for the National Association of Evangelicals, put it differently.
“Someone driving a treacherous mountain road,” he said, “does not need access to the ravine below.”