As holiday shopping season begins, UG examining payday loan shops
Americans look forward to the holiday season not only for receiving gifts but also the feeling that goes along with giving.
But that giving is getting more and more expensive every year. After the holidays are over, those same consumers dread the credit card bills they will receive. Add in utility bills, home mortgage payments and maybe a car repair bill, and all of a sudden, money becomes tight.
But nearly a dozen payday loan businesses in Wyandotte County stand at the ready to assist consumers with their bills.
Perhaps too ready.
In the last year, many municipalities in the Kansas City metropolitan area - including the Kansas suburbs of Shawnee, Lenexa and Overland Park - have enacted local ordinances restricting the operations of payday loan operations.
In Overland Park, where one city council member described the presence payday loan shops as "Adding a negative character to the area," the council in June passed a city ordinance - based primarily on land use restrictions - attempting to limit the number of such shops.
While regulation of the financial industry is matter largely left to state legislators, commissioners for the Unified Government recently brought up the issue.
"We are becoming a haven for predatory lending," Commissioner Nathan Barnes said at a special session meeting earlier this month. "We're the only city in the metro that hasn't done any legislation."
Preliminarily, legislation, at either the local or state levels, doesn't seem likely to advance in 2008.
The issues surrounding predatory lending and the regulation of those types of firms would be addressed by the Kansas Legislature and by Congress.
"What we can do for these types of businesses to use zoning and land use restrictions to limit proliferation," UG spokesperson Mike Taylor said. "That's generally what Lenexa and Overland Park have done with their ordinances."
Predatory lending regulations were introduced legislatively in 2005 and also in 2007, but went nowhere.
Taylor says based on Barnes' idea, the UG will include a policy position on predatory lending for its Kansas Legislative agenda, but won't introduce any legislation.
"It's a very tricky kind of an issue because if you open it up, you also open up a lot of other issues," Taylor said.
The UG's statement will mirror that of the Mid-America Regional Council, a non-governmental agency that seeks to combine the interests of greater Kansas City communities.
"The Unified Government joins the Mid-America Regional Council and many other local government officials in their concern over the operations of short-term loan businesses," the UG's policy position states. "The Kansas Legislature is urged to consider legislation to protect the interests of citizens who require short-term loans by ensuring there is full disclosure of the terms and that citizens have easy access to that information."
That legislation has failed to advance largely because of the lack of support for regulation by the state's largest city, Wichita.
Taylor adds that the industry has enlisted lobbyist support in previous legislative sessions to thwart any legislation restricting the industry.
"They're pretty well funded," he said.
Earlier this year, in response to public outcry and federal attention on predatory lending, the industry launched a $10 million public relations campaign to reassure a skeptical public on the benefits of their monetary products.
The campaign focused on the one-time, emergency situation benefits that loan shops offer.
However, the Consumer's Union was unimpressed.
"Payday loans are a trap and are not used on a one-time basis as originally claimed by the industry," the union says in a fact sheet on its Web site. "Loan rates are way too high, especially given their low risk."
On an annualized basis, some loans offered by payday lenders can approach a 390 percent interest rate.
"We have listened to concerns raised about our industry and have developed innovative solutions to address them," Community Financial Services Association of America president Darrin Anderson said in a press release earlier this year. " These new initiatives will ensure that CFSA members hold themselves to a higher standard of responsible service."