Mazuma Hits Roadblocks As It Attempts To Help

With nary a bank in sight and a large population of low-income residents in need of cash, payday lenders in midtown Kansas City, Missouri, have the upper hand.

On average, they charge between 15% and 18% per $100 borrowed and roll that over every two weeks on any loan that still has a balance due.

"By the time these loans get paid off, they've collected anywhere from 200 to 400% interest," said Rob Givens, CEO of Mazuma CU, Kansas City.

Those types of lending practices made Givens angry enough to take action. Unfortunately, he said, state regulatory guidelines are holding him back. In March, his community credit union with $240-million in assets and 50,000 members opened a branch in midtown Kansas City. It's within a five-mile radius of 24 check cashing and payday lending operations. Givens said his board approved $1-million to lend at a 10th of the payday lenders' interest rates.

But, because the CUs lending formula includes both a fee and an interest rate, the state regulator won't allow it.

"The state says you can charge a fee or you can charge interest, but you can't do both," Givens said, explaining that his formula charges a $10 fee for the service and 18% interest on the entire loan. That pricing would allow his credit union to make a fair profit and help "an awful lot of people" at the same time, he said.

The passage of recent legislation didn't help much either. Givens said it was suppose to cap payday lenders, "But in the end made it easier and let them charge more money."

Nevertheless, Givens is not giving up. he recently formed a task force of area leaders from CUs of various sizes to brainstorm and decide how best to proceed. Among the ideas that came out of the first meeting was to consider the shared branching network through the state league's CUSO as a possible service provider.

Right now, he said, the task force is waiting for written input from area leaders. He expects they will meet to discuss the ideas in the next several weeks.

"That area supports and needs this kind of service," Givens said. "It is a comeback area with a lot of subsidized and low-income housing."

To help learn more about payday operations and the kinds of people who use them, Givens said, he sent his executive team to investigate. Among the first things they learned is that a checking account and employment are prerequisites to getting a loan.

"To get a payday loan, you must have a checking account and be employed," he said. "They want to see post-dated checks and pay stubs."

Borrowers who can provide those types of materials indicate to Givens that they are earnest and responsible, but just need an alternative to payday lending.

What Else Was Discovered

His team also discovered that payday operations are willing to take everything from car titles, jewelry and other valuable items in exchange for money.

Givens said after a local news station reported the results of his team's investigation, a 61-year-old elementary school librarian called him for help.

"She said she had $6,000 in payday loans," he said. "She was paying $1,800 a month in fees, never touching the principal. She was in the process of losing everything."

Mazuma CU was able to help her. But, he said, his credit union and others in Kansas City want to do more.

"Ultimately, I'm going to fix this thing," he said.