Short-term lenders can lead people twith lower incomes to long-term troubles.

Just Business- or preying on the weak? 

Short-term lenders can lead people twith lower incomes to long-term troubles.

Dennis Behrens wants to talk about the payday-loan business. A wiry man with dark hair and intense eyes, the 43-year-old Behrens is infectiously optimistic. His demeanor draws people to him. But he looks tough, like a man who has learned some rough lessons. After talking to him awhile, one can see that his optimism has been hard-won through a life working for low wages at scores of unskilled jobs.

At 1 p.m., the crowd at Sidney's on Broadway is sparse; the lunch crowd is gone. A couple of coffee drinkers sit at the Formica counter. Diners eat alone and in pairs throughout the restaurant, newspapers and magazines next to their plates. Behrens makes his way past the counter and toward the back of the restaurant.

Sitting in a booth behind a chattering family, he taps his fingers to 1960s pop tunes blaring from the speaker above. Greeting the waitress, who's happy to see him, he orders coffee and a club sandwich.

Behrens turns away from the waitress. His face grows long and serious as he begins to talk about an industry in Missouri that provides short-term small loans for a price most people would never pay.

Behrens says he took a short, frenzied ride to the bottom when he became involved with payday loans. As alderman of the tiny village of Lake Annette, Mo., just east of Cleveland and south of Harrisonville, he says he should have known better. But he decided in February 1999 to use the small-loan industry to get himself and his wife of 20 years, Anna, past some unexpected closing costs on a new home.

"Things weren't coming together," he says, using his hands to make his point, index fingers landing in unison on his menu. "We were buying the house and needed just a few more dollars to make it work. We passed the credit checks, found a mortgage lender. You really can't do that to buy a house -- borrow money to ensure a house deal, I mean -- I know that now. But these payday loans aren't traceable. The owners aren't really accountable. There's nothing there that makes them report to the government or to a credit bureau, unless you can't pay back. At the time, I figured I would get us past the problem.

"I was just a few hundred from owning my own home. It was tough to face. It was easy to get the money, really easy. It got us past the house closing, and I thought everything was going to be just fine. I had every intention of paying those loans off."

Then things fell apart with one chance occurrence. Anna wrecked her car and needed transportation to work. The extra expense of a used car on an already tight budget forced Dennis to start renewing four loans he had for $100 every two weeks at $15 each.

"You know, $60 doesn't seem like much to some," he says. "But we were hooked. If you can't pay the original loan off, you have to renew them. Before we realized it, we were in trouble. I was running around town paying the $15 to the payday people and writing new checks all the time. I was spending sometimes four hours a day making sure all my bases were covered."

What Behrens got into is a young industry with virtually no state or federal oversight. "This is an outgrowth of Reagan-era, greed-is-good thinking," says consumer lawyer Bernard Brown, who is passionate in his opposition to the short-term lending industry in its present form. "Small-loan lenders are doing what used to be illegal. This kind of excess used to be called loan-sharking; now it's institutionalized.

"We have moved from Bedford Falls to Pottersville (a reference to the movie It's a Wonderful Life). Not that everything was perfect, but now it's plain mean-spirited. It has moved from a world that wasn't quite right to a world with a Kafkaesque atmosphere, where people who don't do the math, or can't, take it for what many call 'a lapse in personal responsibility.'"

Starting small Short-term lenders in Missouri basically worked out of a handful of small shops in urban areas before 1990. The small-loan business in the 1970s was mostly informal and was linked through a series of regional and state investigations to organized crime. Operators basically emerged from the back of saloons to run loan-sharking operations with city occupational licenses.

In 1979, Democrat Karen McCarthy, then a state representative from Kansas City, wrote legislation, which the General Assembly approved and the governor signed, stating that no business could charge a fee on less than $1,000 lent to an individual for household purposes. With later legislation the state allowed short-term lenders to charge a flat fee on loans but limited charges to cover the cost of lending the money.

The limits held profits down and kept many people out of the business. A couple of Kansas City lenders in the 1980s provided professional, clean service to clients who needed to fill a gap in their finances in a legitimate way. The rest -- no more than six or seven -- did business out of walk-in shops regulated only by the free market.

During the Bush administration, the short-term lending industry built a strong lobby that brought its interests to state legislatures. The industry began to grow in states that had begun to regulate the industry more formally, at the same time allowing higher interest and fees.

In 1990, Missouri legislators decided to do the same. The ensuing law allowed the director of the Division of Finance, now an arm of the Missouri Department of Economic Development, to establish rates based on those of loan businesses in states contiguous to Missouri -- essentially pinning the interest, fees, and terms for small loans on what the market would bear. Collection costs, including bad-check charges and attorney fees associated with prosecuting a bad check or breach of a loan contract, were not considered fees or charges and could be levied against the borrower.

"What happens," says Dale Irwin, who is a partner in the law firm Brown works for, "is that when you introduce legislation to regulate a business that people once thought wasn't good for folks, you begin to legalize the behavior that was once thought harmful."

"Essentially," Brown says, "you say that the debt, no matter what the circumstances in which it was obtained, and the inability to pay it off, is the fault of the debtor. It (the legislation) was allegedly done to get government off the backs of business. But what it is, is a big step back toward putting children back into coal mines. It is a belief in economic Darwinism, where people really believe that if someone is poor, they desire to be poor.

"We need Dickens to return and remind us that people who step on the weakest are the worst criminals of all."

Getting serious Since 1990, according to Eric McClure, acting commissioner of the Division of Finance, payday lenders grew from "just a few legitimate businesses in 1990 to 200 in 1995, 250 in 1996, and 500 in 1998. The state had nearly 630 at the end of November 1996."

According to the Consumer Finance Services Association (CFSA), a short-term small-loan lender advocacy and lobbying group, more than 7,000 of the payday-loan or cash-advance businesses operate in the United States. States license about 100 new short-term lending businesses each month.

"We license the businesses and examine them to see if they are in compliance with the federal Consumer Protection Act," says McClure. "For the payday-loan companies, the rate maximum is set by this office. Generally, we want to make sure that the contracts for the loans are in the proper form. We make sure that all disclosures on rate and terms are presented so the borrower knows what they are paying on the amount they are borrowing."

Seven state examiners scrutinize Missouri's more than 600 payday-loan businesses. Operators pay a $300 annual license fee, and they can charge a $5 origination fee per loan and up to 10 percent of the loan's principal, to a limit of $15 per $100. The maximum fee a small-loan business can charge is $45; the maximum it can lend is $500.

Loans can be made for terms of two weeks to 10 months. Most payday-loan businesses use the two-week limit. The maximum annual percentage rate, including all fees, is 391 percent on loans with two-week repayment terms.

Proliferation of short-term lenders also has occurred in Kansas, especially in urban Kansas City, Wichita, and Topeka. Communities in which factory-farm and livestock operations have opened, and in rural western Kansas, also have seen new short-term lenders enter the market. In Kansas, short-term lenders can charge basically the same fees as those in Missouri. Kansas has a sliding scale for fee maximums, which are capped at $56.60. The maximum loan limit is $890, and the maximum annual percentage rate is 390 percent.

Behrens says none of the loan cost information means anything to a desperate person. "When you are standing there looking at a contract, it says right on it, real prominently, what the interest rate is," he says. "Sure, it seems high, but you are thinking in terms of coming up with $15 on a hundred bucks in two weeks. That doesn't seem like much when you really need the money."

As a result of a well-intentioned effort to get past a temporary crisis, Behrens quickly fell into trouble with short-term loans. The lenders were holding Behrens' postdated personal checks, which they would run through the bank if he didn't pay or renew the loan every two weeks. Behrens feared bank overdraft charges and charges for collection from the lenders and the lenders' check services when the checks did not clear. At the same time, he feared prosecution on bad-check charges if an unpaid check was handed over to the Jackson County, Mo., prosecutor's office. To keep the lenders from sending the checks through on his account, which never had the money to cover them, he borrowed from other short-term lenders to cover the old loans and new renewal fees.

According to Steven Geary, senior counsel for the Division of Finance, lenders can sue to recover the loan and fee amounts, and their attorney fees, in civil court. "The criminal courts, however, have jurisdiction as well," he says. "Having gotten a bad check, the lender can turn that over to the prosecuting attorney. Since he or she (the prosecuting attorney) is an independent elected official, they are permitted to use discretion in the prosecution of the bad check. Some say they will see what they can do; others won't touch them (bad-check writers).

"We get complaints from borrowers who are being pursued criminally, and we get complaints from lenders who say they are not getting satisfaction from the prosecuting attorney. But it's not up to me or my department."

Jackson County Chief Deputy Prosecutor David Baker says his department makes every effort to collect what comes to their office. Usually, his office sends a letter to the check's owner after a referral from a payday-loan business. "We ask (the borrower) to pay the check in 10 days, and there is a fee associated with that, a handling charge," he says. The onetime administrative fee is $5 for bad checks written for less than $10, $10 for checks of $100 or less, and $25 for those that are for more than $100.

Baker says a business fee also is collected for the lender. "Usually, it is what they charge if they receive a bad check," he says. "The 10-day letter says, essentially, 'Come in and pay or bad things will happen to you.' If they don't come in, we continue to collect those funds, if possible. If we can't, we issue a criminal warrant if we have to. Then it comes down to looking at the facts and circumstances of the case."

But Brown says some payday lenders make it known when their customers begin to get in trouble that they will be prosecuted for bad-check writing. "We are not talking about people who have a lot of resources," he says. "If they did, they wouldn't be there in the first place."

What happens, Brown says, is that lenders take a check from a customer on an account the lender knows from the beginning doesn't contain enough money. "If there was money in that account, would (the customer) be writing (the check) to the short-term lender?" he asks.

Changing everything Behrens may have fared well if he had faced prosecution, with his case ending, as many do, with a payment arrangement that included attorney's fees and other charges. "But I knew that my $115 debt suddenly had a lot more money tacked to it," he says. "That was something I couldn't face for the longest time. I was in a position with the original payday-loan people that I could not pay the loans off and could not get loan renewals. Then, with four or six of those loans out there, I didn't know how well I would do if my checks got to the prosecutor."

Extension policies vary among payday lenders -- also known as cash-advance and check-loan companies. Some have a no-renewal policy, while others allow customers to renew loans up to three times, the legal limit, before running the checks.

"I didn't want the checks going to the prosecutor and was hoping for something, anything, extra," Behrens says. "I was really stuck. I knew that extra paycheck of money wasn't going to come. But it was like an addiction. It was easy to get the money from a payday-loan office someplace else. Then it was easy to make the excuses and rationalization to keep going to others. If the dollars weren't in the bank, I felt like I had better take another loan to pay the old one. All the places I went were more than happy to give me a loan."

Behrens says he also received a loan card, which allowed him to get even more loans. Many loan companies do business under several different names, some centralizing their customer information, advertising, and staffing operations. In Behrens' case, the loan card allowed him to go from lender to lender in the same company and avoid the rudimentary checks on his bank account and job. He says that as long as he kept his loans current, he could get as many loans as he needed.

The only thing the card did not let him do was get more than one loan a day from the same company. Under Missouri law, lenders cannot make more than one loan per day to the same customer. Likewise, the customer is not allowed to take out more than one loan a day, period. Although lenders generally follow the law, according to Division of Finance officials, enforcement of the law on debtors is difficult, if even existent.

For example, Behrens was able to go from lender to lender, in one case three in the same shopping center, and get several loans on the same day. "In four months, I had racked up $3,000 in debt on $600 in loans," he says.

His debts became a self-esteem issue, Behrens says. He felt the need to stay in the good graces of the people he had borrowed from, if only because he had gotten himself into a tight spot. But he also found it difficult to accept that something that had begun with good intentions had led him to failure. "My life was falling apart," he says. "I wanted to pay these people back but couldn't. I felt like I was becoming a bad person because I couldn't keep up, but I had to keep going back."

Behrens says he felt the strains of keeping the loans current, including driving to far-flung loan offices several times a week, writing new checks, and keeping all the loans straight in his head. His marriage began to fall apart, and eventually Anna left him. After enduring a seven-month separation, the couple are back together, and Behrens says, "It changed everything, this whole ordeal. Nothing will ever be the same for me or for us."

The irony of his story is that Behrens teaches young people how to live on their own. "I work with foster kids and kids in custody of the state from 17 to 21 years old," he says. "We try to get them established in a job and get a nest egg before we let them go. We make sure they have the tools they need to get started: some job skills and some knowledge of how to manage their money.

"Right now, I am their biggest example. I talk openly with them about what happened to me and what can happen when you get caught in the payday-loan deal. It doesn't have to happen, and lots of people do it and get by. But these kids do not need to get into it, suffer the one accident or bill they can't get out from under, and then find themselves in trouble. Most people live too close to that edge anyway. I don't want it to happen to my kids."

The car-title loan Another financial snare involves the car-title loan industry. First authorized in 1998 by the Missouri legislature, the industry has grown from 57 businesses at the end of that year to nearly 150 at the end of November 1999.

Unlike the unsecured payday loan, where the threat of prosecution and subsequent reporting of overdraft and bad-check writing is basically all lenders have to collect from nonpaying borrowers, the car-title loan is made against collateral, which can be taken and sold for repayment. In Missouri, McClure says, the Division of Finance also regulates this short-term lending business. The title-loan rate is 1.5 percent on the amount of the loan per month plus fees to defray business costs. "The annual percentage rate of the interest plus the fees can be as high as 300 percent, depending on the size of the loan. Of course, the smaller the loan the higher the percentage rate," he says.

Title loans have a term that can run from 30 days to 10 months. According to the 1998 law, the loans can be up to $1,200. Because a used car's value depends on the market, title lenders, says Kansas City attorney Bob Murphy, try to make loans for the least amount possible. Doing so prevents lenders from having to go through the trouble of repossessing automobiles from their customers or ensures that the lender gets the greatest rate of return from a loan by taking and selling the car.

Lisa, who did not want her last name used in this article because she recently started a new job, was in a financial pinch last year. As she talks, gospel music pumps through speakers inside her modest Kansas City home. As she turns down the music, Lisa says she was "in need of some money and saw an advertisement on television. It sounded good to me. For the money, they wanted the title of my car. But I was in a desperate situation and didn't care.

"When you are desperate, you will do things you know are not good for you. The money was available and easy. I went to them. They were really friendly, and the whole process was really easy. I gave them the title, and they gave me the cash. The interest was not something I agreed with, but that is their rule. It was pretty high, but I thought it was a quick loan, just for a week or so. I went and signed and got the cash."

Lisa, who is 34 and has a 16-year-old daughter, received $400 against the title of her 1988 Cutlass Ciera. For the $400 loan, Lisa agreed to pay $86 a month. "My intention was to pay as quick as possible," she says.

Lisa had lost her job and was looking for another when she took the loan to make a house payment. "The house was the one thing you can't lose," she says. "I was out looking for a job and thought I would be able to find one right away. But what I found was a good-paying part-time job, but it was only part time. All the bills were so overwhelming at the time. I found myself in a situation that I was further behind. It was a real struggle to keep up the $86 a month and try to pay the $400. I could never pay the principal and made the $86 payment for six months and then missed one."

Lisa then sought bankruptcy protection. It wasn't something she wanted to do, but the loss of her job and a few bad decisions, she says, made doing so the only option.

"Then one day a man from the title loan company came to my job, where I was working part time, and made a scene," she says. "He talked to me about being behind, saying really aggressively and loudly, 'You are in big trouble.' Thank God, my lawyer and I had filed the bankruptcy petition just the day before. I had him talk to my lawyer, and I was able to keep the car. But it was a real mess."

Fulfilling a need Kansas City, Mo., City Councilman Kelvin Simmons has taken a special interest in short-term loan businesses. "I represent a district that has been especially impacted by many things that have decreased the access people have to their money," he says. "In the '60s, there was a fight for human decency and equal opportunity. Now I have to talk about economic opportunity -- the basic right of people to do things people ought to be able to do. We are talking about a larger scenario that includes such things as grocery stores, gas stations, the ability to pay utilities.

"On a very basic level, financial institutions have left the community. They are no different than grocery stores and gas stations. When they leave the urban core, they leave a gap. People fill it and feel they can prey on that."

Simmons says the area between 12th Street on the north and 47th Street on the south has seen a flight of banking and financial institutions in the past decade. "We are looking at a community left unbanked," he says. "I have had people who tell me they know loan sharks who would like to have the rates the short-term loan industry has. In regulating the industry in 1990, we may have instituted loan-sharking at much higher rate, made it legal, and given the industry the power to have people prosecuted on its behalf."

Simmons thinks that although the short-term loan industry grew between 1990 and 1994, the fastest growth came after the legalization of riverboat gambling. "If you think about it, they really proliferated in 1994 and 1995," he says. "Simultaneously, banks really began moving out and began the mergers. Now the financial institutions say they no longer want to be in brick and mortar because of technology and online banking, but that leaves a whole group of people in vast areas of the city and the state not served."

Since 1994, Simmons says, only one bank has come into the inner city. Other than Douglass Bank, not one bank has opened a satellite center or branch in the urban core. "This is a problem for people on the bottom, period," he says. "I see places in rural areas also. The poor and unbanked are sometimes in a position where this is the only place they can go. A loan of $500 to $1,000 is not enough to make a traditional bank any money."

Geary, with the Division of Finance, thinks that no one factor or group of factors has contributed to the increase of payday and car-title lenders. "I think we are looking at an evolution in the way people do business," he says.

"One of my examiners offered the idea that a title loan is the old pawn-shop arrangement. The pawn shops found it was no longer profitable to make loans of $50 to $100. The payday and title loan people have picked that up. There are many factors involved, but the small-loan business has also evolved. We also have to remember that banks have never been interested in extremely small loans."

And the market is ripe for growth of the short-term lending business. In 1998, state Sen. Jim Mathewson pushed legislation that loosened usury limits on small loans from lenders not covered under the Missouri statute. These included out-of-state, short-term lenders operating in Missouri. The previous usury statute limited the amounts out-of-state businesses could charge to what Missouri lenders (doing business in Missouri) could charge. The statute, however, overstepped what the state was allowed to do and regulated interstate commerce.

Under the 1998 law, the Division of Finance regulates rates charged by Missouri short-term lenders. But the freedom of out-of-state lenders to charge whatever the market would bear set a scenario for Missouri lenders to argue that they should be able to operate with equal freedom -- and be controlled only by the market.

The CFSA maintains that half of Americans sometimes need money to cover expenses and that 10 percent of Americans, about 24 million, "say they are somewhat or very likely to obtain a payday advance."

Relatively little is known about the average short-term loan customer in Missouri. The CFSA bases its information on representative national surveys, an average that may bear little resemblance to the Missouri customer. The Division of Finance regulates the industry in Missouri but has focused on enforcing the law rather than investigating the industry's impact on individual communities and the state as a whole. About the only fact about short-term lending is that 75 percent to 80 percent of customers pay back their loans; lenders must absorb the rest.

The Illinois Department of Financial Institutions studied the industry in that state in 1999. Geary says the Illinois report is a good comparison for Missouri, because the demographics, and average and median incomes, of the two states are similar. In Illinois, 60 percent of short-term loan customers have an income between $20,000 and $70,000. Of those Illinois customers, more than 39 percent were homeowners, 51 percent were unknown, and the rest were known or thought to be renters. Some 64 percent of the Illinois customers were ages 25 to 44, with another 17 percent being from 45 to 54 years old. While 17 percent held bank cards or retailer credit cards, 77 percent had no credit cards.

The short-term loan industry, the report's authors wrote, "offers a solution for people with questionable credit or those that have incurred unexpected expenses. The fees levied by these companies, while exorbitant, can be compared to the increased costs of banking services throughout the country.... The increased banking fees for returned checks, coupled with the added charges placed onto the account by the recipient of the check, make it less expensive for a person to borrow from short-term lenders than to risk having their check returned NSF (not sufficient funds)."

The report, however, also pointed out that "Short-term loans provide a service as long as they are used as intended. It is only when customers use them for extended periods of time or for reasons other than financial hardship that problems can occur." The report states that allowing lenders to roll over the loans even once can turn "a short-term loan into a long-term headache." Stricter state regulation of the industry -- setting payment terms, determining the amount of principal paid with installment payment arrangements, and limiting the profit of rolling loans over -- would help decrease abuse and customers' ability to get themselves in trouble.

Not in business to lose money Kansas City attorney Russ Purvis' firm represents nine of the more than 40 payday-loan shops in the metro area, as well as bankruptcy filers. "I see the business from both sides," he says. "All the payday shops we represent are above-board. The people are in the business, obviously, to make a profit. But at the same time, the type of business they are in is not a high profit margin venture. The interest rates are high because the risk of loss is also great."

Purvis says the short-term small loan business "is the lender of last resort. Consumers who use the payday or title loan companies are people who banks will not touch. Without the resource of the short-term lender, there really is no way for many of their customers to access short-term money. The shops are filling a niche that would not be addressed, and is not addressed, by larger lending institutions."

Most people return repeatedly to the short-term small-loan lender, and most people who use them know either through experience, or by way of their assets and income, that they can't walk into a bank to borrow money. It is easy money, he says, that does not require collateral. "Some consumers do not necessarily have verifiable employment," he says. "But they have a checkbook, and they guarantee they will make good on the loan in whatever the term is."

Many people who seek out payday and car-title loans have run the gamut of credit sources, Purvis says. "They wind up at lenders that have longer terms and higher interest on their loans," he says. "The loans are secured by furniture or the television. The payments on those loans are generally the interest and barely a little bit of principal. A few of these companies continually roll that loan into another built on new collateral."

As people move from traditional banks, credit unions, and mortgage companies to these second-tier lenders, and finally to payday and car-title loan companies, they find themselves deeper in debt and farther behind.

"When they begin to use a payday-loan company," says Purvis, "most consumers have the money to cover those small loans and the fees but cannot get credit elsewhere. They do not have the resources to get cheap money and have to pay higher rates.

"People get into the system and onto a downhill slide. Every time they borrow, their rate goes up, their credit gets behind. Then they are off to a nontraditional car lot, rental stores, and other places that will give them credit. Then who knows what the interest on that is. It is a vicious cycle."

On the other hand, Purvis says, he does not agree with people who criticize the small-loan lenders. "The critics do not understand the concept of the week-to-week paycheck person," he says. "They have usually budgeted well and know exactly what is coming in and going out. But they may, from time to time, need a short-term loan to fill the gaps. They use payday loans. Most of the time, they are wage earners whose credit is bad and are considered untouchable."

Recent efforts by local elected officials, most notably Simmons and Councilmember Bonnie Sue Cooper, to control the growth of short-term lenders started with limiting the number of businesses or shutting them out altogether. But because only the state can regulate the industry, Simmons and Cooper have focused on limiting where the businesses can locate and their outside appearance.

"When I found out that there were no zoning restrictions on the businesses," Cooper says, "I tried to get a five-year moratorium on them. Then I found out I couldn't do that; only the state could. We started having meetings with payday-loan people and neighborhood groups that were concerned about them. The most offensive aspect of the businesses was the color of the buildings. The owners are willing to tone those down, but it still does not take care of the neighborhoods and the zoning issues. We are now looking at limiting them to commercial zoning and doing it like liquor licenses and limiting their number and density.

"The proliferation of them in residential areas is a big problem. We feel the short-term loan shops are not suitable to a city attempting to revitalize, but we can't just zone them out because we feel that way. The real problem is what they are doing with customers. Some say there is a need for this business, but others disagree. One man I talked to said it is the old sharecropper philosophy coming back -- getting a person deeper and deeper in debt so they owe their soul to the company store."

On the bottom Most customers who use short-term loans have bad credit from the beginning, in part because of their income, says Murphy, who works for Purvis' law firm. "The so-called booming economy has not raised the income of unskilled workers in years," he says. "People who were making $6.50 in 1990 maybe are making more now, but they are running into more debt. When they come to see us about filing bankruptcy, the payday loan is the straw that broke the camel's back. But the problem is much bigger than the payday or car-title loan business."

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.

Or if a person gets into a bind and has car problems, he has to get it fixed or he can't get to work. "They could use a bus," Silverman says. "But many people do not live on the bus line, and that is only for an emergency anyway. We can help them into a more permanent solution."

To critics who say payday lenders make fabulous profits off of others' misery, Silverman says that like any business, some years yield a good profit and others may not be as good.

"We have consumers who complain," he says. "But in any industry -- groceries, shoes, insurance -- you have that. We will always have consumers we cannot satisfy. But the majority, 99 percent, are satisfied -- more so than at the corner grocery. Whenever someone is not satisfied, we find out what the problem is and we try to rectify it. We really bend over backwards. Let's say the customer didn't know what they were doing when they got the loan. They give us back the money, and we give them back the service charge and call the deal null and void."

If a customer cannot pay, Silverman says, two things can happen. "The customer can call and say they just can't pay, that they have no money or lost their job. Then we work with them, sometimes we really work with them. If the check bounces, we work with them. We try to collect as much as possible. But are you going to take someone to court for $115? It's not worth the time. There is always a risk.

"But we are no different than any other merchant. We turn checks over to the prosecutor, but that is down the road for the borrower. Occasionally, we get people who file bankruptcy, and there is nothing we can do about that."

Staying out

of trouble The threat of having her car taken away and her wages garnisheed led Lisa to seek bankruptcy protection. The loss of her job and the weight of the car-title loan were financial problems too deep for her to deal with, she says.

"The car-title loan helped me get to bankruptcy," she says. "I messed up, and it kind of messed me up. The money I spent on financing that loan was money I could have put toward something else. I am now out more money than the car is worth. But I am working full time, and things are a lot better. I am still paying the loan off, my lawyer got an agreement to pay just the principal and get it over with."

In September, Behrens made up his mind to stop running himself ragged and take whatever came next -- prosecution, debt collection, an irretrievable credit record. His wife had left, and he was tired and alone. He knew only that he did not want to lose his house. It was the desire for his own home that got Behrens into the maddening situation in the first place. He called his bank, a small, community institution, to see what he could do about the hundreds of dollars in overdraft charges. The charges had piled up after he talked to his short-term lenders and tried to work out payment plans.

The bank official he talked to scheduled a face-to-face meeting with Behrens, during which Behrens was offered the deal that would turn everything around for him. The bank official suggested Behrens work out his financial difficulties with Consumer Credit Counseling Service (CCCS). In exchange, the bank would close his checking account and forgive the charges.

"I was in a small town," Behrens says. "I can't imagine what would have happened if I was Kansas City and had to go to talk to a banker who sees this all the time. I tell you, I was so relieved. I could see a beginning."

Behrens originally knew nothing of CCCS. The nonprofit organization's office is tucked into a third floor corner of the American Red Cross building at 211 W. Armour Blvd. The office's atmosphere is reminiscent of an AA hall -- a place that makes it clear that "We don't care what you did to get here, but we're glad you made it."

"We try to help people back to self-sufficiency," says CCCS Director of Community Development Jeff Sheets. "We do as much teaching and education for that purpose as we can."

Sheets sits behind a neatly ordered desk he claims is not always so prim. He was a financial adviser for a second-tier lender, Norwest Financial, before he came to CCCS 10 years ago at the age of 30. "I just couldn't do that anymore," he says. "I was seeing too many people get into trouble with high-interest loans and saw that some people were there and in trouble because they either had no money or couldn't manage the money they had."

He spends much of his day building relationships with creditors and business and financial institutions CCCS needs to help their clients, but Sheets still counsels people in trouble. They are people who do not want to file bankruptcy but find themselves in untenable financial difficulties. Behrens, he says, is a good example of a well-intentioned person who is learning from his mistakes and is trying to set things straight without resorting to bankruptcy.

Sheets says critics of the industry can't discount a process that is "necessary for those who can't be or don't want to be involved in the normal lending process. There are many people who distrust banks or credit unions, who have had problems with credit or their checking accounts. They are people who do not have the ability to gain a line of credit elsewhere.

"Sure, I would rather these folks get loans at 6 percent. But that isn't going to work. On the other hand, we have at least one person every business day walk into our offices -- about one in 10 -- who has problems with short-term lenders. The lenders do not report good payment records, only bad debts and bounced checks. It keeps people who need a way out of their financial difficulties in the cycle of poverty and financial ineptness."

The lack of credit for working people with bad credit or people on meager means may come from banking regulations. Sheets says he regularly talks to bankers who want to be in the small-loan business but can't be. "As soon as they begin to make those small loans at decent rates -- the bankers tell me -- an examiner could write up their institutions for making risky loans and exposing depositors' assets."

But, Sheets points out, short-term lenders also offer an array of services, including the ability to pay utility bills for little or no cost. At most places, bill-payers need not pay fees to pay the bills, as the payday-loan business has a contract with utilities for offering the service. Many offer check-cashing, money-wire, pager, and cell-phone services. All of these services come at a steep price, but for people whose phones have been turned off due to nonpayment, they are available at terms that, at least initially, people can find the money for.

When people in financial trouble arrive at CCCS, Sheets assesses their situations and begins to work with the short-term lenders. "Several years ago, when they first began to boom, it was a tough business," he says. "The short-term lenders were not willing to negotiate or work with us. But now things are quite a bit different. We are able, with most of them, to end the cycle of rollover charges, set up payment schedules, and help our clients figure out how to meet their obligations.

"Many of our clients still find the short-term loan business confusing. In the contract, there is a statement of the cost of the money, and there is an understanding of what can happen to them if they don't pay. But many of the customers are also people who look to the present, who are putting out fires and not looking to the future.

"While I recognize there may be a need for the business, in many ways, I still feel like the short-term lenders are in a business that keeps people down, that keeps the poor, poor. It takes the last bit of money they have when they are already in trouble. The business creates a situation like taxes, where people just figure in the cost of the money without a realization of what that money is really worth."

Sheets says people who come to CCCS with short-term loan problems are folks on the edge, dealing with basic life dilemmas -- how to make the phone bill payment and keep the lights on, how to make the credit card payment and still be able to buy groceries.

"The short-term loan office, either car-title loans or payday loans, is their credit card," he says. "It is a way to access the money they already have either in their bank accounts or in their assets. Many use the services and do just fine. I see the individuals who don't make it. I see the disasters.

"And most of it can be avoided with just a nudge in the right direction. They are getting easy money and don't want to go into bankruptcy. People in trouble generally just need a little education, perhaps, or a way to widen their perspectives."

Sheets says CCCS has become the debt counseling service for many area nonprofits. The Kansas City Neighborhood Alliance (KCNA) holds regular classes on credit traps and money management. Some nonprofit housing organizations offer debt management classes for home buyers, as does the KCNA.

And standing up As do many people who file bankruptcy proceedings, Lisa received counseling on money management, though her education already had depth. "Looking back, the car-title loan was more of a problem than it was worth," she says. "It seems to me they know people are in problems and will do things to get a little cash. I will never go back. It was an expensive lesson for me."

With the help of CCCS, Behrens was able to avoid bankruptcy, make a payment schedule he could stick to, and shelter his wife from further damage to her credit. As it stands, the Behrens' credit is trashed, and Anna has been able to run her business because of the presence of other part-owners.

"I will never use a payday-loan place again," Behrens says. "It just is not worth it. You get money in your hand and you feel, for a moment, you have the problems solved. Then soon you realize that you have just prolonged and put off your problems and that they are bigger.

"If people didn't need them, they wouldn't be there. But I will never find I need them again. I am within $1,000 of paying the lenders off, and I am scrupulous about it. It takes a lot of energy, driving around paying four loan offices off. But I know if I miss even one payment, I am going to be in trouble. I just want to be done with it."

Contact Patrick Dobson at 816-218-6777 or patrick.dobson@pitch.com.

JUST BUSINESS -- OR PREYING

on the weak

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