Growing payday loan industry setting up shop all over Lawrence
But the numbers the payday loan business is swallowing up are anything but small. Based on the sheer rise of outlets offering such loans, it’s clear the new industry is making a sizable impact crater on the surface of Lawrence economics.
“Payday loans generally came into existence in the early ‘90s,” said Tom Linafelt, director of corporate communications for the Quick Cash store chain. “The reason for that was a need among consumers for small denomination, short-term loans that banks weren’t lending.”
Two years ago, the Southwestern Bell Yellow Pages did not have an individual entry for “Payday Loans.” Now it has three. Performing a Google search for “payday loans Lawrence, KS” will find 10 different locations.
Payday loans work like this. A customer requests a loan generally from $100 to up to $500. They show their social security card, a valid driver’s license or state ID, their most recent bank statement, their most recent paycheck stub and usually a piece of mail sent to their current address. They must prove they have a source of income.
The amount of interest payday loan businesses can charge on a loan varies from state to state, but in Kansas no more than $15. The customer then writes a check for the amount of the loan plus the interest, and the business keeps the check until the total is repaid or up to 14 days. So if a customer wanted the industry average $300 loan, they would write a check for $345.
Once the customer repays, the business shreds the check. But if a customer doesn’t pay, the business will cash the check, and if it is returned, the business will begin calling the customer, their work references and eventually creditors.
“We try every chance we have for 55 days,” said Rhonda Nicanor, assistant manager of Check ‘N Go, 2540 Iowa St.
For a growing industry, a $15 service fee is a promising profit.
Check ‘N Go averages 140 new loans each month, Nicanor said. If that number were averaged out for all 10 payday loan businesses in Lawrence at 100 loans per month, and each loan was for the industry average $300, the gross total profits for the industry in Lawrence for one year would be $540,000 based on the $45 interest fee.
Expenses are low and include only paper goods, employee wages, franchise fees and the cost of renting out office space.
According to a fact sheet provided by Quick Cash, the industry as a whole generates $6 billion in fees a year and feeds roughly 23,000 locations nationwide.
Quick Cash alone has 558 locations in 25 states, adding a boom of 185 new stores in 2005, and made $152.9 million in revenue in 2005. That’s a lot of emergency car repairs, doctor visits and rent payments .
Every company listed varied customer demographical statistics. Linafelt said 25 percent of Quick Cash customers have annual incomes of more than $50,000 while 77 percent make at least $25,000 or more a year.
“Our customer demographic is different than what people think; it’s more affluent,” Linafelt said.
Nicanor said unlike Quick Cash, the majority of Check ‘N Go customers are working class people who have families and people living off of Social Security. She said there is a reason why the majority of her customers are repeat business.
“Such a large percentage of the population is below the poverty level,” she said. “None of us are really middle class if you do the math.”
Nicanor estimated that less than one percent of her customer base was students .
That’s a stark difference from the 30 percent the manager of the Lawrence Quick Cash, who asked not to be identified in this story, estimated.
Former University of Kansas student Matt Stambaugh said he has twice taken out payday loans, both times to attend out-of-town concerts. Both loans were for $150 and the interest he paid on both was about $30 a piece.
He said the national economy is driving the rise of the payday loan industry.
“Unless they’re rich, everybody is pretty much poor and they need to buy diapers or they don’t have health insurance for prescriptions,” he said.
Neal Becker, assistant professor of economics at KU, agreed that a weaker economy was one reason behind the influx of payday loans businesses.
“(These statistics) suggest that there are more people living close to the edge,” Becker said. “They don’t have a cushion of savings to fall back on.”
He said that people who don’t have a bank but were able to get loans from relatives 10 years ago may no longer have that option because of the shape of the economy, and must resort to payday loans.
“This is not your first place if you need to take out a loan,” Becker said. “It’s people’s second or third choice.”
Linafelt likens payday loans to taxi rides.
“It makes sense to take one to the airport but not across the country,” he said.
One other option has always been pawning merchandise for a small, quick loan.
Doug Wahl, owner of Lawrence Pawn and Jewelry, 944 E.23rd, said his business holds customers’ goods as collateral for a loan, which the consumers must then pay a 10 percent interest fee on to retrieve.
“Banks would hold papers or titles, and we hold the physical item,” he said.
He said his customers range from pastors to students, and most have full-time steady jobs.
“They’re not a bunch of losers coming in to get money to drink or buy drugs,” Wahl said.
But the economy also affects the pawn industry, he said.
“We saw an increase in $10 and $15 loans when gas prices went up,” he said.
For him, the biggest advantage of pawn shops over payday loans is that his business will only resell a customer’s items if they don’t repay their loans, whereas not paying at a payday loan business will hurt a customer’s credit.
Nicanor said just the opposite.
“I personally would rather have somewhere to borrow money where I didn’t have to leave my personal belongings,” she said. “It’s something that means something to you versus money just from work.”
All of these businesses said they do little advertising because customers typically search them out.
Wahl said he is in competition with every retailer because he is simply reselling merchandise that can be purchased all over.
The payday loans representatives said they do compete with each other, but because their interest rates are regulated by the state, most of their competition is a result of overlapping locations.
Because these businesses are increasing, their markets are beginning to overlap like Venn Diagrams being piled one on top of another.
“They’ve probably tripled since we’ve owned this,” Wahl said.
Payday loan businesses continue to increase in Lawrence as long as there is that special need.
“When a customer is paid off they say, ‘I’ll never have to come back here again,’” Nicanor said. “Two weeks later, guess who’s back?”