Just Business- or preying on the weak?

Dan Hall has represented bankruptcy clients for 20 years in Kansas City. He says that short-term loans have become a factor in bankruptcy for his clients only in the past five years. Short-term small loans are part of a greater debt problem. "The businesses have appeared and keep growing like the Energizer bunny," he says. "And it seems to be becoming a greater problem. I just went to court with a client who had 22 payday loans. He went to one to get money, then to another to pay the first one off, and so on. It was a house of cards built with postdated checks.

"In the food chain of lenders, these guys are at the bottom. Above them are the high-interest lenders, The Associates, Beneficial, HFC. Five or 10 years ago, many of the same problems I see with short-term lenders were from these companies. I still see some of that, but (see) more from title loan and payday loans. The household finance people are now the upper level, and they are a little better about who they loan money to."

Hall continues: "I have to tell you that the people in trouble with payday loans are from all classes, not just those on the bottom. We see folks who have maxed out credit cards first, then to make those payments, they have been out getting money on the street."

Payday loans are the final straw for those who are already in trouble, Hall says. "There is not a large percentage of people who are here because they got into trouble solely because of short-term loans," he says. "But 25 percent of the people I deal with have them."

Hall thinks that a need for short-term small loan lenders exists. He says his clients with short-term loan problems are the worst off and that most people pay their obligations without running into further problems. Hall also sees people in higher income brackets using payday or title loans because they are easy, quick sources of cash. The loans are also easier to hide if the borrower has some unsavory or gambling debt to pay.

For all the harm critics allege that short-term loans cause, Hall says, "they fulfill a need or there would not be so many of them. In the last 20 years, and especially the last five or 10, the income level of my clientele has gone up. But that dollar is not going as far. If someone has an income of $2,000 to $3,000 a month, and then you go through the budget we make for them, you find that before you are done -- with rent, food, utilities, day care, car payment, insurance -- it is all used up."

Finding a niche Paul Silverman has sold insurance in Waldo since 1978. He began as a life and health insurance broker and salesman, a business he founded out of a 1963 Chevy. His first office was located in a real estate office in what used to be a small barbecue restaurant. From the office, for which he paid $50 to keep his desk and use the telephone, he drove on weekends to the swap-and-shops at the Heart and 63rd Street drive-ins.

"I pulled out a folding table and a couple of chairs to tell people about insurance," he says. "Then on Monday at the office, I would call on the people I met at the swap-and-shops. The swap-and-shop was a great way to meet people who needed life and health insurance."

After a few months, a lot of study, and a new license, Silverman moved into the property and casualty insurance business, using the real estate agents he was rubbing elbows with as a means to solicit homeowners' insurance clients.

"As the business grew, I heard the same thing over and over again," he says. "Basically, we had a lot of customers come to us who couldn't afford insurance premiums. Sometimes they could not afford down payments and wanted to pay part of the payment and have us hold a check, or bill them at a later date. That's where I found a need for small loans to tide folks over from payday to payday. I saw the short-term lending business as an adjunct to my insurance business."

Silverman has been in the short-term lending business since 1985. He now owns 12 of the 40 payday-loan shops in Kansas City.

"Everyone needs insurance, and everyone has the need for short-term cash sometimes," he says. "I have customers in the payday-loan business who have good incomes and jobs. It's just that occasionally something will come up. Either they need to make the insurance premium, or they need something else.

"For example, if a customer goes to the grocery store and they know when they write a $10 check that they have no money. When that check comes back, and it was written for something we all need, many merchants put that through twice, so there is already $40 in overdraft charges. If they then send that on to their collection service, or they collect it themselves, they charge $20. So now you have $60 on a $10 check."

The alternative, Silverman says, is for the customer to borrow $100 and pay $15. He has helped the customer save $45 in fees.