An Alternative to Pay Day Loans

Gregg Lombardi-Executive Director

I am pleased to announce that, as a result of the work of volunteer attorneys at three major law firms, low-income Kansas Citians now have an alternative to Pay Day loans.

For many years Pay Day loans have been the scourge of low income neighborhoods.  The average interest rate on these short term loans is 450% APR.  Although the default rate on these loans is about 6% and they are obscenely profitable, traditional major banks have, to date, not offered competitive alternatives and efforts to find a legislative solution to the problem in Missouri have failed.

About two years ago, CCO, a local community organizing group, started working to create a competitive alternative to Pay Day loans.  Legal Aid joined the effort about 18 months ago.  Our Volunteer Attorney Project has recruited talented volunteer attorneys including Adam LaBoda from Spencer Fane Britt & Browne, Kyle McCurry from Stinson Morrison Hecker and Tom Schenkelberg of Polsinelli Shughart to work on the project. Kyle initially provided pro bono representation in support of the project generally and subsequently represented Central Bank, which will actually be making the loans.

Other partners in the project include the FDIC, Commerce Bank, United Way and numerous other community stakeholders.

As a result of the attorneys' work, a new not-for-profit-- Fair Community Corporation-- has been formed, complex banking regulations have been navigated, funds raised and FCC is now taking applications for loans.  The loans will be at 36% APR and will come with the opportunity for financial education to allow the borrowers to gain access to even lower interest loans.  A set of referring agencies will be referring qualified, low-income borrowers to the project for loans.  For now at least, borrowers will have to go through a referring agency. 

If the project is as successful, as we think it will be, it is likely to be a powerful tool in driving Pay Day lenders out of Kansas City and may well be replicated elsewhere.

The project is also an excellent demonstration of what talented pro bono attorneys working through VAP can accomplish.  We are tremendously grateful for the excellent work that Adam, Kyle and Tom have done on this project.