By Raegan Hennemann, Senior Correspondent
Tom Linafelt has heard the criticisms about the short-term lending industry: people get caught in a “cycle of debt,” there are too many payday lenders around and the annual percentage rate is extremely high.
But Linafelt, who is director of corporate communications for QC Holdings, a payday loan company with about 600 locations across the United States, including two in Springfield, says demand remains strong.
Yet on the local level, the Springfield City Council approved a change to the zoning code so new payday loan businesses can only locate in three districts and cannot be within 1,500 feet of another payday loan facility.
Ward Seven Ald. Debbie Cimarossa, who sponsored the ordinance, said the MacArthur Boulevard Business Association originally contacted her about the number of payday loan businesses in the area.
“I represent MacArthur Boulevard, and MacArthur Boulevard has had a great proliferation of payday loan companies.” She said they’ve had difficulty attracting other businesses to that area, and thought that proliferation was part of the downfall. With that thought in mind, she said, “We needed to try and limit the amount of payday loans in a concentrated area. We regulate zoning all the time and place businesses in appropriate districts or sub-districts.”
One of QC Holdings’ locations, First Payday Loans, is on MacArthur Boulevard. The other is on North Grand Avenue. Linafelt said he does not agree with putting limitations on the industry.
“Studies show that our customers use our product as it was intended to be used, that they typically meet the terms of their loan terms without incurring any further financial difficulty or distress. For local municipalities to seek to restrict access to that kind of credit to me seems counter productive,” he said.
According to a list produced in September by the city of Springfield, Cory Jobe, chairman of the MacArthur Boulevard Business Association, said of the 38 payday lenders in the city, eight of them were on MacArthur Boulevard.
“I think the role of city government regulates industry, all types of industry, every day. Unfortunately the payday loan industry has not been regulated and when you have a proliferation of one business in a small area, I think it sometimes sends the wrong image,” he said. “As a business association we’re not saying we want to end payday loans in the city of Springfield; we’re not saying that at all. As a matter of fact our ordinance grandfathered the existing ones in. If we were going to revitalize the area we felt that we needed to have a better playing field in terms of what type of businesses can be in that area. By doing that we’re trying to limit how many payday loan centers, or any type of business, one on top of each other that can locate in certain areas of Springfield.”
Based on market research and customer response, Linafelt said people typically seek a payday loan to cover a short-term, unbudgeted expense such as vehicle repairs, medical expenses and higher than expected utility bills.
“Essentially a payday loan is to help make ends meet. If I’m not going to make it to the next paycheck without bouncing a check I need some way to get that done. The payday loan helps customers fill in that gap,” he said.
While some might think the current economic situation would boost the business of short-term lenders, Linafelt said that is not the case.
“The reality is that people need to pay us back. Their confidence level in their ability to pay us back demonstrates, or in many cases dictates, whether or not they take out a payday loan. If they’re not confident in their ability to pay us back and they’re borrowing responsibly as we suggest they do, they will not take out a loan,” he said. “The other thing is they need a job and so unemployment affects the universe of customers or the universe of applicants who will be approved. If unemployment goes up then that universe shrinks. They have to have an active checking account so those are some of the underwriting, sort of the criteria that we use when we’re assessing the credit worthiness of a customer and theoretically at least in these desperate economic times some of the folks aren’t matching up to those criteria. We still see strong demand for short-term credit in nearly if not all of our markets. It’s not like it goes away but it’s also not like we have this great surge of business either.”
Linafelt takes issue with the media’s portrayal of short-term lenders creating a cycle of debt for borrowers. He said the whole story is not told as more than 90 percent of the company’s customers are able to pay their loan back on time.
“Those customers, that small minority of customers, are disproportionately represented in the press, typically in the lead of a story. They’ll say Joe Smith lost his home, and family and wife and job and kids, because of a payday loan. Well, that’s not true. Joe Smith misused the product. Joe Smith probably had a lot of other financial management issues before he ever walked into any payday loan store but Joe Smith then typically represents the industry’s customer and the reality is far different than that.”
A 2001 analysis conducted by the Credit Research Center at Georgetown University reported that the majority of payday advance customers earn between $25,000 and $50,000 and 42 percent own homes. Everyone had a steady income and a checking account.
One future option to visiting a traditional payday loan store on MacArthur Boulevard is In God We Trust Referral Service. In August 2008, Kevin Slot was riding his bike south on MacArthur Boulevard and came up with the idea of an alternative for people “maybe feeling desperate financially” and thinking they need a payday loan.
Slot proposed the idea to the Rev. Charles B. Jackson, who is social action co-chair for the Ministerial Alliance of Springfield and Vicinity. The primary goal of In God We Trust is to refer people to solutions and alternatives in the community so they can avoid payday loans. Budget coaching and financial education will also play a role.
“Really we’re finding out what does somebody need,” Slot said. “And someone might think they need a loan but there might be a social service here in town that could meet their needs.”
One example Slot gave was a family who is considering a payday loan because they need to buy groceries. But instead of taking on a short-term loan with high interest, Slot said the family can be referred to a local social service agency, such as a food bank to possibly meet their needs until the next paycheck.
In God We Trust Referral Service hopes to open in a building along MacArthur Boulevard before the end of the year. Besides giving people another option besides payday lenders, Jackson said one of the goals is to assist with getting a loan with a lower interest rate.
“It would actually be a credit union or a bank that would give the loan,” Slot said. “We would partner with them to pay the interest, or cover if it went bad, with the donations and the grants and whatever we raise.”
Raegan Hennemann is a freelance writer from Springfield.
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