Missouri groups have already been active in terms of trying to increase minimum wage and reduce the maximum interest allowed on cash advances but other groups believe that this is not enough. This is why churches, bankers, non-profit agencies and lawyers have joined forces in Kansas City to create an alternative source of credit for those struggling to pay their bills. At present, citizens of Kansas City can only turn to payday loan companies if they are in need of emergency cash. Banks don’t provide quick loans and there doesn’t seem to be any other way out. For some families, even basic expenses such as mortgage or rent, groceries and utility bills are beyond their scope so they need immediate help. Short-term loan companies provide this assistance but at an interest rate critics say is too high.

As a result of these financial travails, Fair Community Credit has been formed in Kansas City. Ace Wagner is a member of this new entity and says that there is a world of difference between what banks offered 40 years ago and what payday loan companies offer today. Fair Community Credit has entered into a partnership with Central Bank of Kansas City in order to issue emergency cash loans to the needy. They hope that 500 short-term loans will be provided in 2012.

Major Challenge

Given the size of the cash advance industry in Missouri, Fair Community Credit knows that 500 loans is more or less a drop in the ocean. The Missouri Division of Finance stated that 2.4 million payday loans were issued in 2010 within the state. Nonetheless, Fair Community Credit hopes that their experiment will attract attention and grow in the future. Eva Schulte, executive director of Communities Creating Opportunity, wants the scheme to be replicated throughout the state.

The loans are unique in the modern era as Central Bank have agreed to offer cash loans of $300-$2,500 with the borrower not required to have any collateral. This aspect of the loans is similar to cash advances but the interest rate is greatly reduced. The overall interest rate will be in double figures and can be repaid over a longer period of time. Over $200,000 has been donated to a loan guarantee pool which promises to cover any loan losses incurred by defaults. However, customers will be referrals which will decrease the possibility of defaults. Essentially, customers are not allowed walk in off the streets and borrow like they are with payday loans.

A number of cities in Missouri have placed restrictions on where payday lenders are allowed set up shop. The Missouri General Assembly also has two bills pending which aim to cap interest rates for short-term loans. According to Schulte, the general public does not want to pay triple digit interest rates. Yet cash advance companies are fighting back and have already collected more than $1 million from donors as they push to keep the maximum interest rate bill kept off the ballot. In contrast, the anti-payday loan group Missourians for Responsible Lending has collected just $63,000. It seems as if those campaigning against short-term loans have to convince more of the public that they are in fact ‘predatory lenders’.

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