KC group creates alternative to payday loans
A nonprofit group comprised of Kansas City churches, bankers, lawyers and nonprofit agencies has begun offering an alternative to the payday loan industry for people who need a small amount of quick cash.
The group, called Fair Community Credit, this month issued what it hopes will be the first of 500 loans in its first year of business. The loans will generally range from $300 to $2,500 and 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, The Kansas City Star reported ( http://bit.ly/xZdWUi ).
Fair Community Credit's organizers, working with Central Bank of Kansas City, will make the loans from a more than $200,000 loan guarantee pool donated by foundations and individuals. The catch is customers must be referred to the group, which increases the chances of the loans being repaid. So far, seven churches and social agencies have agreed to refer only people they know well.
People like Stevie Wakes, a Baptist minister in Kansas City, Kan., who took out a $500 loan after having his pay sharply reduced. He thought he would be able to pay it back in two weeks but when he couldn't he had to renew his loan so often that the $500 loan grew to $1,250 in four months. His annual interest rate ballooned to 450 percent until he scraped together the cash to pay off the loan.
"It's a debt trap," Wakes said.
Fair Community Credit's organizers realize that 500 loans won't make much of a dent in an industry that, according to the Missouri Division of Finance, issued 2.4 million loans in Missouri last year. But they hope others in the region will copy their effort.
"We want it to be replicated," said Eva Schulte, executive director of Communities Creating Opportunity, which worked three years to establish Fair Community Credit.
The new product comes as local, state and federal officials are considering restrictions on the payday loan industry.
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