Sometimes there just isn’t enough money — and when one thing goes wrong, everything else seems to follow. A car breaks down. Plumbing begins to leak. Someone gets sick. 

Such emergencies demand an urgent response — perhaps a visit to the nearest payday lender. But what you do to get out of that financial jam can have long-lasting effects on your life and finances. The good news is that you have more choices than you might think, consumer advocates say.

“Emergency cash is often needed by someone in crisis,” said Michelle Presnell, community impact manager for financial stability at United Way of the Plains. “If you’re struggling with cash flow, there are other ways to address the issue before running to a creditor.”

In Kansas, about 175,000 people a year turn to payday loans. It can be the fastest way to get money but also the costliest. Annual percentage rates on payday loans can be astronomical –  as much as 782% APR for a seven-day loan. That’s 20 times the highest credit card interest rate. 

Currently, that rate is legal under state law. A broad coalition of consumer advocates and faith-based groups wants to change that. They are seeking legislative reform and ways to spread the word that people needing quick cash have other options. 

How payday loans grow debt so fast

It’s not immediately obvious the rates are so high when you first take out a payday loan. The typical payday borrower signs up for a two-week loan and pays a 15% fee of the amount borrowed. In Kansas, the maximum you can borrow at one time is $500. Paying $75 to get $500 immediately might seem like an acceptable tradeoff if you believe you have few options. 

But what if you can’t pay it back in 14 days because something else comes up you urgently need money for? Many people solve this by getting another payday loan to pay off the first.

You owed $575 on that first loan. But now you are getting charged an additional 15% fee to buy another two weeks to pay it back. Go through this several more times, and in just 12 weeks time you could end up paying $450 on top of the $500 you initially borrowed. That’s $450 interest for a $500 loan – the result of a 391% APR. 

Because of the negative impact of this cycle on financially struggling families, critics are lobbying the Kansas Legislature to more tightly regulate payday lenders to reduce interest rates and allow balances to be repaid in installments over longer periods. 

“Financial strains are a big reason for the breakdown of husbands and wives, hurting their relationships and also their children. Payday loans — a last resort for virtually everyone — only exacerbate this family tension,” said Chuck Weber, executive director of the Kansas Catholic Conference, a coalition member. Weber said he saw the damage firsthand when his own brother got caught in this trap. 

Payday loans effect on families drives call for legislative action

Formed in 2019, Kansans for Payday Loan Reform Coalition has more than two dozen member organizations including Kansas Action for Children, a statewide child advocacy group; Kansas Appleseed, a statewide social justice nonprofit; and Wichita-based groups such as Catholic Charities-Diocese of Wichita, St. Mark United Methodist Church, Greater Wichita Ministerial League, Wichita Black Alliance, Sunflower Community Action and the Urban League of Kansas.  

Despite the broad base of support, payday lending reform has not gained traction in the Legislature since the coalition formed and no such legislation has yet been filed for this session.

The short-term loan industry maintains its services are necessary because nearly half of Americans cannot afford an unexpected $400 expense. “Small-dollar loans are an extremely valuable product and provide an important source of credit to millions of Americans,” according to the Community Financial Services Association of America, a national trade association based in Alexandria, Virginia.    

United Way of the Plains is not engaged in lobbying, but Presnell said hers and other organizations stand ready to immediately assist people in financial crises with alternate solutions.

For people caught up in unmanageable debt, Presnell recommends Consumer Credit Counseling Service. They offer “debt mitigation,” providing someone to advocate on your behalf to renegotiate terms on a loan to make it manageable.

What better options than payday loans exist for short-term loans?

What if you haven’t yet taken out a payday loan but are thinking about it? Or some other last-resort option like a title loan, a pawn shop or selling your blood plasma?

You have better choices, Presnell said. 

“We all know groceries are incredibly expensive. If you have a $500 car repair you need to get done, maybe you can go to a food pantry for a couple of weeks and save that $500 you would have spent on food,” Presnell suggests. 

Similarly, you might find an agency through the United Way to help pay your rent or your utility bill, or to provide free health care, freeing up money to cover your emergency. The way to access this kind of help is to call 211, text 898-211 or visit the 211 website  for chat assistance.  

“Folks don’t know that they have those options available so they go to the most obvious,” Presnell said, referring to the short-term lenders advertising easy money. “They make it very easy, very quick to get money. And on the other side, if you are asking for the quick easy solution — the healthy solution takes a little bit more work,” she said.

What financial help is there if you don’t have a bank account?

These solutions can work for anyone – including those who cannot access payday loans because they do not have bank accounts. This group is referred to as “the unbanked,” and represents about 4.5% of households — more than 50,000 households in Kansas.

Why would someone not have a bank account? A 2021 study by the Federal Deposit Insurance Corp. found the chief reason given was not having minimum balance requirements. Other reasons cited included high or unpredictable bank fees, troubled banking history or distrust of banks.

Presnell explained: “Historically what has happened is, if you had an account, let’s say you overdrafted that account, and you were never able to ever make up that negative amount in your account, they do what is called charging you off, and that means it goes to collections. And it shows on a list that you weren’t able to maintain that checking account. That bars a lot of folks from reentering into the financial system.”

Presnell, who worked in the banking industry a dozen years before joining United Way, said she’s seen how common it is for people living in “a really narrow cash flow lane” to overdraw their accounts by accident, incurring overdraft fees.

 “They think they have money in their account, or they think they are right on the line, or they are not paying attention to what is happening, and they find that $6 Sonic order becomes a $42 Sonic order because they overdrafted their account,” she said.

United Way has a solution for people in this situation, as well: a program called Bank On ICT, which partners with Wichita area banks to provide low-barrier bank accounts. 

It is a local version of a national nonprofit program operating in 98 communities. Wichita was accepted into the program in January 2022 and began offering Bank On accounts in August 2022.

Bank On ICT accounts require no more than $25 to open, charge no more than $60 in fees a year and never issue bounced-check charges. Wichita banks offering these accounts include Commerce Bank, Bank of America, Equity Bank and Intrust Bank. The banks work in partnership with the United Way and other social service agencies that provide wraparound services to help people get their finances in order. This program can also be accessed through 211.

“People deserve a second chance,” Presnell said. “We believe that everybody should have the opportunity to rebuild their financial situation.”