Maria Galvan used to make about $25,000 a year. She didnвЂ™t qualify for welfare, but she still had trouble meeting her basic needs.
вЂњI would just be working just to be poor and broke,вЂќ she said. вЂњIt would be so frustrating.вЂќ
When things got bad, the single mother and Topeka resident took out a payday loan. That meant borrowing a small amount of money at a high interest rate, to be paid off as soon as she got her next check.
A few years later, Galvan found herself strapped for cash again. She was in debt, and garnishments were eating up a big chunk of her paychecks. She remembered how easy it was to get that earlier loan: walking into the store, being greeted with a friendly smile, getting money with no judgment about what she might use it for.
So she went back to payday loans. Again and again. It began to feel like a cycle she would never escape.
вЂњAll youвЂ™re doing is paying on interest,вЂќ Galvan said. вЂњItвЂ™s a really sick feeling to have, especially when youвЂ™re already strapped for cash to begin with.вЂќ
Like thousands of other Kansans, Galvan relied on payday loans to afford basic needs, pay off debt and cover unexpected expenses. In 2018, there were 685,000 of those loans, worth $267 million, according to the Office of the State Bank Commissioner.
But while the payday loan industry says it offers much-needed credit to people who have trouble getting it elsewhere, others disagree.
A group of nonprofits in Kansas argues the loans prey on people who can least afford triple-digit interest rates. Those people come from lower-income families, have maxed out their credit cards or donвЂ™t qualify for traditional bank loans. And those groups say that not only could Kansas do more to regulate the loans вЂ” itвЂ™s fallen behind other states whoвЂ™ve taken action.
Payday Loan Alternatives
Last year, Galvan finally finished paying back her 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 to the program, a local bank agreed to pay off about $1,300 that she owed to payday lenders. In return, she took out a loan from the bank worth the same amount. The interest was only 7%.
Now that sheвЂ™s out, Galvan said, sheвЂ™ll never go back.
She doesnвЂ™t have to. Making essential link payments on that bank loan helped build her credit score until, for the first time, she could borrow money for a car.
вЂњThat was a very big accomplishment,вЂќ she said, вЂњto know I have this need, and I can meet that need on my own.вЂќ
The project has paid off $245,000 in predatory loan debt for more than 200 families so far.
Claudette Humphrey runs the original version of the project for Catholic Charities of Northern Kansas 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 hasnвЂ™t been able to help everyone.
вЂњThe Number One reason, still, that we have to turn people away,вЂќ she said, вЂњis just because we have a limit.вЂќ
People only qualify for the Kansas Loan Pool Project if they have less than $2,500 in payday loan debt and the means to pay back a new, low-interest loan from the bank. The program doesnвЂ™t want to put people further in the hole if they also struggle with debt from other sources, Humphrey said.
вЂњSometimes, even if we paid that off, they would still be upside-down in so many other areas,вЂќ she said. вЂњI wouldnвЂ™t want to put an additional burden on someone.вЂќ
Humphrey doesnвЂ™t think her program is the only solution. In her opinion, it should be lawmakersвЂ™ responsibility to protect payday loan customers the same way they protect all consumers вЂ” through regulating payday loans like traditional bank loans.
вЂњWhy are these companies not held to that same standard?вЂќ she said. вЂњWhy, then, are payday and title loan lenders allowed to punish them at such an astronomical interest rate for not being a good risk?вЂќ
Catholic Charities is just one of the nonprofits pushing for tighter rules. The members of the coalition include churches and community organizations, said ShanaeвЂ™ Holman, an organizer with Topeka JUMP, the group that is leading the push.
вЂњThere are other states whoвЂ™ve implemented guidelines that sell you how much incomeвЂ¦ what percentage of your check can go to a payment,вЂќ Holman said. вЂњThose are the types of regulations that we would like to see,вЂќ
She wants Kansas to require longer loan periods so borrowers arenвЂ™t hit with penalties when they canвЂ™t meet short payment deadlines.
Currently, the maximum period 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 pay them back, with no maximum loan period. In Ohio, borrowers have between 91 and 365 days to pay back a loan. If the period of the loan is less than 91 days, the repayment must be less than 7% of the borrowerвЂ™s net income.
Both states set annual interest rates near 30%. Some states regulate payday loans the same way they do other consumer loans. But Kansas is like most other states, allowing annual interest rates of 391%. That means a two-week loan of $500 at 15% interest can cost a customer almost $2,000 over the course of a year.
The group plans to work with legislators during next yearвЂ™s session in Topeka.
ItвЂ™s the first time that such a large group has organized around the cause, said Jeanette Pryor, a lobbyist for the Kansas Catholic Conference. Payday loan reform is a perennial topic at the Statehouse, she said, but itвЂ™s hard to convince lawmakers to increase regulations.
вЂњThat was something that I heard in the beginning. вЂWhy canвЂ™t an adult make a rational decision on their own? Why do we have to legislate this?вЂ™вЂќ she said. вЂњThe larger the coalition, the more opportunities to educate legislators.вЂќ
Nick Bourke is the director of consumer finance at Pew Charitable Trusts. It pushes for reform of payday loan laws. He said reform is long overdue in Kansas, which hasnвЂ™t updated its payday loan laws since 2005.
вЂњItвЂ™s possible to provide small-dollar credit, even to people with damaged credit histories, for much less money than what Kansans are paying now,вЂќ he said. вЂњBut Kansas laws are outdated.вЂќ
In 2014, Pew Charitable Trusts conducted research on payday loan usage 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 the State Bank Commissioner, David Herndon, which regulates loans and penalizes lenders for breaking the rules, refused to be interviewed in person or over the phone, but did answer questions through email. Deputy Bank Commissioner Tim Kemp said the agency only enforces existing law and doesnвЂ™t weigh in on proposed changes.
Attorney General Derek SchmidtвЂ™s office, which takes consumer complaints about payday loans, declined multiple requests for interviews and information.
An Option For Credit
Payday lenders say they offer affordable credit to the large proportion of Americans who donвЂ™t have enough cash to cover an emergency expense. The Community Financial Services Association of America, an industry group for small-dollar lenders, declined an interview due to scheduling conflicts, but sent a statement through email.
вЂњSmall-dollar loans are often the least expensive option for consumers,вЂќ said CFSA chairman D. Lynn DeVault in the statement. вЂњParticularly compared to bank fees вЂ” including overdraft protection and bounced checks вЂ” or unregulated offshore internet loans and penalties for late bill payments.вЂќ
Some Kansas customers, like Keri Strahler of Topeka, say the loans are helpful.
Strahler doesnвЂ™t work, and most of her income comes from Social Security Disability Insurance. This year, she took out three payday loans to cover medical debt, and said she hasnвЂ™t had trouble paying them back.
She knows many people perceive the loans as predatory. But for Strahler, borrowing has alleviated more stress than itвЂ™s caused. Her credit cards were already maxed out, and the loans helped her avoid being taken to court or having to sell her furniture to cover her debt.
вЂњI chose the payday loans because I wanted them immediately addressed,вЂќ she said. вЂњItвЂ™s been very helpful.вЂќ
Humphrey, of Catholic Charities, acknowledges the loans can be helpful for some customers. The question is whether the state can keep others from being exploited.
вЂњIвЂ™m not saying thereвЂ™s not a place for them,вЂќ Humphrey said. вЂњ(But) is there a better way to do what they do so that itвЂ™s not devastating families?вЂќ