April 8, 2008

Ordinance No. 071204
Shall the City of Kansas City, Missouri be authorized, for the purpose of reimbursing the City for administrative expenses related to the regulation and inspection of short term loan establishments and the issuance of permits for such businesses, to impose an annual fee of $1,000.00 for each permit (new or renewal) for a short term loan establishment or $500.00 for a permit issued with less than 6 months remaining in the calendar year?

The issue
Background
What is a short-term loan establishment?
When did the City start requiring short-term loan establishments to register?
Why did the City start requiring short-term loan establishments to get permits?
What are the City's rules that must be followed for a permit to be granted to a short-term loan establishment?
If this measure passes, how would the revenue from the fees be used?
Are fees charged for other businesses to be licensed?
How much revenue is expected to be generated if this measure passes?
Why is this being voted on and not simply passed by the City Council?
What would happen if this measure does not pass?
If this measure does pass, when would it go into effect?

The issue
On April 8, 2008, voters in Kansas City will be asked if they wish to approve an ordinance that would require the owners of short-term loan establishments to pay an annual permit fee. The proposed fee is $1,000 for an annual permit and $500 if less than six months is left in the year when the application is filed. For the measure to pass, a simple majority of "yes" votes must be cast.

Background
The Regulated Industries Division of the Neighborhood and Community Services Department monitors these activities/businesses:

• Liquor (server permits and establishment licenses)
• Catering licenses
• Sidewalk cafe licenses
• Picnic permits (for non-profit organizations)
• Adult entertainment (individual permits and establishment licenses)
• Dance halls
• Carnivals/motor raceways
• Nude modeling and semi-nude body painting studios
• Taxi cabs/delivery service
• Sightseeing vehicles (including horse-drawn carriages on the Country Club Plaza).

Ordinance No. 071204, which was passed in September 2007, added short-term loan establishments to this list. Regulated Industries enforces the legal provisions and technical requirements of the Code of Ordinances with the goal of safeguarding the health, safety and well-being of the public and sustaining the livability and vitality of neighborhoods.

What is a short-term loan establishment?
A short-term loan establishment is a business that provides customers with payday loans. As recognized §43-2, Code of Ordinances, payday loans (also known as deferred deposit advances) are small-dollar, short-term, unsecured loans that borrowers promise to repay out of their next paycheck or regular income payment (such as a Social Security check). Payday loans are usually priced at a fixed dollar fee, which represents the finance charge to the borrower. Because these loans have such short terms to maturity, the cost of borrowing, expressed as an annual percentage rate, is very high. (The Federal Deposit Insurance Corporation has made the observation that a typical charge is $15 to $20 per $100 advanced for a two-week period, resulting in an APR of nearly 400 percent.)

When did the City start requiring short-term loan establishments to register?
The Regulated Industries Division started the permitting process for short-term loan establishments in January 2008.

Why did the City start requiring short-term loan establishments to get permits?
The City Council made the following legislative findings as part of committee substitute for Ordinance 070846, which passed Aug. 30, 2007. These establishments can result in serious financial hardships to some residents, particularly the elderly and low-income, from which they cannot extract themselves

• The proliferation of these establishments throughout the city contributes to the deterioration of the city's commercial and residential areas
• Patterns of this proliferation suggest the industry's targeting of low-income residents
• Regulation of these establishments is necessary for the promotion and protection of the public health and welfare of its residents, the City's interests and those of its residents, in maintaining the quality of its commercial and residential neighborhoods and the City's interest in maintaining its tax base.

What are the City's rules that must be followed for a permit to be granted to a short-term loan establishment?
At this time, short-term loan establishments must adhere to the following rules established by the director of the Neighborhood and Community Services Department as authorized by §43-7, Code of Ordinances. These rules are established by authority of the ordinance but not by the ordinance:

• Post and enforce a no loitering policy at the location
• Limit signage to only on exterior wall of the business, not to exceed 5 percent of the total square feet of the available area
• Signage and building color may not be a primary color
• Not use any banners
• Post a notice in not less than 24-point, bold type within 3 feet of each transaction window or area that spells out the annual percentage rate being charged, the annual percentage rate equivalent of the aggregate of those interest rates and fees charged per $100 borrowed, a computation on the amount owed should the loan be turned over six times, a warning as to what may occur if the loan defaults and if there are any state or federal laws to rescind the loan agreement
• Prevent public displays of indecency, prostitution or solicitation for prostitution
• Prevent disorderly conduct on the premises
• Prevent illegal drug sales or use on the premises
• Prevent sales or use of alcohol on the premises
• Regularly remove trash within 50 feet of the premises
• Assure the owner and/or manager is on the premises during business hours.

Failure to follow the rules can result in the failure to obtain or renew a permit, or in the suspension or revocation of a permit.

If this measure passes, how would the revenue from the fees be used?
The revenue from the fees would be used by the Regulated Industries Division to offset the administrative costs associated with permit process for short-term loan establishments.

Are fees charged for other businesses to be licensed?
Yes, the Regulated Industries Division assesses fees for all of the permits it grants.

How much revenue is expected to be generated if this measure passes?
There are approximately 110 short-term loan establishments currently operating in Kansas City, Mo. Permitting each of these would generate annual revenues of $110,000.

Why is this being voted on and not simply passed by the City Council?
It is the best estimate of City staff that the cost of enforcing the permit requirement will be about $1,000. When a service is provided by the City, the cost is not always subject to a vote. However, when a regulation is part of the process, the Hancock Amendment of the Missouri Constitution requires approval by the voters. By obtaining voter approval, the fee cannot be challenged under the Hancock Amendment.

What would happen if this measure does not pass?
The costs associated with the regulation and permitting of short-term loan establishments would have to be absorbed by the Regulated Industries Division. One way to continue with the permitting of these places would be the reduction of enforcement of other regulated businesses, such as taverns, nightclubs, adult entertainment clubs and taxi cabs. If sufficient numbers of inspectors cannot be hired and the workload is increased among the staff, services and enforcement efforts provided by the Regulated Industries Division can be delayed from prior years’ service levels.

If this measure does pass, when would it go into effect?
If this measures passes, the Regulated Industries Division would begin assessing the fees with 2009 renewal applications.