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The Hamilton County League of Women Voters held a debate on payday lending Thursday evening at City Hall in Webster City. Victor Elias, senior associate at The Child and Family Police Center, argued that the Iowa Legislature should limit the annual percentage rate (APR) of the interest on payday loans to 36 percent. Jeff Kursman, Director of Public Relations for the company Check 'n Go, argued that payday loans should not be capped at 36 percent APR.

Elias gave his openings remarks first, commenting, "Two years ago Iowa limited the interest rate for car title loans to 36 percent. We want the Iowa Legislature to do the same thing with payday loans."

Elias explained why he objected to the way payday loans are given.

"The payday lenders do not do a credit check on the people they loan to. You need to have a driver's license and proof of a paycheck; that's it. When you take out a loan, you have to pay it in full because there's no partial payment. And if you can't pay off that loan, you come in and take out another loan," said Elias.

Elias remarked that the average borrower takes out 12 loans a year.

"There was a case where a lady in Newton took out 25 loans a year. That's basically a loan every pay period," said Elias. "She ended up spending $486 on lending fees. The payday lending industry argues that they're helping people who can't get credit, but their customers are falling into a debt trap. If you live paycheck to paycheck, where is the money going to come from to pay off these loans?"

Elias addressed what would happen if payday loans were limited to 36 percent APR.

"What would people do for credit in that circumstance? They would forego unnecessary expenditures, they'd borrow from family members or perhaps they wouldn't pay for cable TV for a month. One-third of the people in the country don't have access to payday loans because they're illegal in the state they live in. This payday debt trap should not be going on in this state either," said Elias.

Kursman then gave his remarks and began by discussing the APR on payday loans.

"APR is meant to be used on annualized products, not the kinds of short-term loans we do," said Kursman. Kursman also said that banks make more money on bounced checked fees and other fees than what payday lenders charge in fees.

"About 75 percent of customers overdraft their bank accounts at some time, according to the Federal Deposit Insurance Company (FDIC). The average overdraft is $36 but the average fee for overdrafting was $27. You're spending a lot more money on overdraft fees than what you're paying us in loan fees," said Kursman.

Kursman said that his company does not hide fees and that it tries to educate its customers

"We provide our consumers with education. We have posters up in our offices spelling out the fees and the payment schedule. We do not push people into debt. What business would intentionally push people into a cycle of debt? It defies every business model," said Kursman.

Kursman described the requirements his customers must meet to be eligible for a loan.

"We do not make loans for more than 25 percent of that borrower's net income," said Kursman. "Our customers are employed and have a regular income. Our average customer makes $45,000 a year. We don't do a formal credit check on our customers. That means that one-third of the people who either don't have a credit rating or have a bad credit rating can get a loan from us. Also, if they can't pay us on time, we have no legal recourse against them by virtue of state law. We can't do anything to affect their credit rating."

Kursman said that pushing payday lenders out of the state would only leave their customers in worse shape.

"For individuals with surprise expenses, they need credit right away. Instead of having to bounce a check, they can come to us and get the money they need to pay for those expenses," said Kursman.

Kursman addressed the issue of whether or not payday loans lead to bankruptcy.

"If you look at studies from the University of Chicago, Clemson, Dartmouth and Columbia, you'll see that they've concluded that bankruptcy actually goes up when people are prevented from using our product," said Kursman. "There are 19 million Americans that use our product in a year. If you take us away, you're leaving them with more expensive alternatives. That's not consumer choice."

In his response, Elias said that it is not true that payday lenders have no legal recourse against customers that don't pay.

"Payday lenders have taken people to court and they've garnished wages," said Elias.

Kursman replied, "That is not true. The laws prohibit us from garnishing wages."

The next event hosted by the Hamilton County League of Women Voters will be a forum on immigration policy Thursday, Feb. 26 at City Hall in Webster City.

Contact Andy Hallman at reporter@freemanjournal.net