The Garden City Telegram

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Money trap

Published 1/26/2012 in Commentary : Editorial

State should do its part to regulate payday loans.

Payday loan operations continue to pop up across the landscape.

While the businesses provide a service for many consumers, they also contribute to serious issues with other customers — particularly the working poor who, in desperation, fall deeper into debt with the high-interest loans.

The situation led a group of church representatives, bankers, lawyers and nonprofit agencies in Kansas City, Mo., to offer an alternative for people who need a small amount of quick cash.

The group — Fair Community Credit — has a plan to issue 500 loans in its first year of business. Loans generally will range from $300 to $2,500. Customers will have slightly longer to pay off the loans, and the interest rates will be far lower than the average 390 percent interest rate charged by the payday loan industry.

Customers must be referred to the group, which increases the likelihood of loan repayment.

It's an intriguing approach at a time many Americans are paying the price for poor financial decisions involving sub-prime mortgages, high-interest credit card debt and vicious payday loan cycles. In Kansas, payday and auto title loans in some instances have cost consumers nearly 400 percent interest.

And now, a new federal agency also has payday loans in its sights.

The Consumer Financial Protection Bureau, which recently held its first public hearing on a payday lending industry that generates some $7 billion a year in fees nationwide, would pursue new regulations that recognize the need for short-term loans that help rather than harm consumers.

But states like Kansas that know the fallout of the payday loan cycle shouldn't need nudging from the federal government to pursue stricter regulations. Many states have indeed enacted more reasonable caps on interest rates that enable consumers to borrow money in a pinch without being gouged, and still allow those businesses to continue making money without exorbitant fees.

Meanwhile, give credit to the group in Kansas City for moving forward with a good alternative for people in financial straits. Stakeholders in other communities who know all too well how desperate people become when times are tough should take notice.

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