Guest Op-ed – Protect Consumers in 2012

7 02 2012

Cap payday-loan interest rates at 36%

By Anne Marie Regan and Lisa Gabbard

As co-chairs of the Kentucky Coalition for Responsible Lending, a statewide coalition dedicated to protecting family assets by eliminating abusive financial practices, one of our major concerns is the high cost of payday lending.

Payday lenders are permitted to charge an annual interest rate of 400 percent. For several years, our coalition has sought a change in Kentucky law that would cap interest rates on payday loans at 36 percent. We are hopeful that the Kentucky legislature will enact this much-needed change in the 2012 General Assembly.

Opposition to high-cost lending is an issue of concern to the broad and diverse group of organizations throughout the state that make up our coalition. Those working to fight against these abuses include wellrespected groups such as AARP, the AFL-CIO, the Louisville Urban League, the Family Foundation and the Louisville/Jefferson County Branch of the NAACP. In addition, a significant number of churches and faith-based groups ² the Kentucky Council of Churches, Catholic Charities, the Catholic Conference of Kentucky, the Jewish Community Relations Council, Citizens of Louisville Organized and United Together, Building a United Interfaith Lexington, Habitat for Humanity and the Society of St. Vincent de Paul  have spoken out against the harmful rates charged by these lenders. 

Protect Kentucky Consumers

Recently, the Kentucky Baptist Convention, the state’s largest religious denomination, passed a resolution at its annual meeting encouraging Kentucky to establish an interest-rate cap of 36 percent on all small loans. The convention cited passages from the Bible condemning usury and asserting the proper role of the government to protect people from predatory activity. The convention also cited data from Kentucky’s payday-loan database, collected over a full year by Kentucky’s Department of Financial Institutions.

In spite of the industry’s claim that payday loans are shortterm debts, the data prove otherwise. A typical Kentucky borrower took out 10 payday loans in the past year and was indebted by those loans for an average of 160 days. Because of the short repayment terms, typically 14 days, the average borrower is unable to repay in full and has to take out another loan to repay the first. In effect, the borrower is paying another $45 every two weeks to borrow the same $300. After 10 such renewals, the borrower will have paid $450 in interest on a $300 loan.

Nationally, 75 percent of all loans are churned in this manner. Because payday loans in most cases turn out to be long-term debts, an annual rate of interest is an entirely appropriate and accurate measure of the cost. In fact, Kentucky and federal law both require that interest be calculated on an annual basis and that the annual percentage rate be stated in the payday-loan contract.

The business model of the payday-loan industry is to entrap borrowers, through high interest rates and short repayment terms, into a continuous cycle of debt from which it is very difficult to recover.  The Department of Defense was so concerned about the effect on military readiness that Congress passed a 36 percent rate cap on payday loans for military families.

Add your voice and call Frankfort. Tell your representatives to protect consumers and cap payday loans at 36%. Call toll-free 1-800-372-7181. More on the General Assembly at 


New Report: Payday Loans are gateway to long-term debt

31 03 2011

New CRL Research: Average “short term” loan keeps borrowers in debt for 212 days per year

Center for Responsible Lending
March 31, 2011

Although payday loans are marketed as quick solutions to occasional financial shortfalls, new research from the Center for Responsible Lending shows that these small dollar loans are far from short-term.  Payday Loans, Inc., the latest in a series of CRL payday lending research reports, found that payday loan borrowers are indebted for more than half of the year on average, even though each individual payday loan typically must be repaid within two weeks.

CRL’s research also shows that people who continue to take out payday loans over a two-year period tend to increase the frequency and extent of their debt. Among these borrowers, a significant share (44 percent), ultimately have trouble paying their loan and experience a default. The default results in borrows paying more fees from both the payday lender and their bank.

Federal banking regulators have voiced their concerns about long-term payday loan usage. For example, the Federal Deposit Insurance Corporation (FDIC) has stated that it is inappropriate to keep payday borrowers indebted for more than 90 days in any 12 month period. Yet CRL determined that the average borrower with a payday loan owed 212 days in their first year of payday loan use, and an average of 372 days over two years.

“This new report finds even more disturbing lending patterns than our earlier reports”, said Uriah King, a senior vice-president with CRL. “Not only is the actual length of payday borrowing longer, the amount and frequency grows as well. The first payday loan becomes the gateway to long-term debt and robs working families of funds available to cover everyday living expenses.” 

CRL tracked transactions over 24 months for 11,000 borrowers in Oklahoma who took out their first payday loans in March, June or September of 2006. Oklahoma is one of the few states where a loan database makes this kind of analysis possible. CRL then compared these findings with available information from regulator data and borrower interviews in other states.   

According to Christopher Peterson, a University of Utah law professor and nationally-recognized consumer law expert, “The Center for Responsible Lending’s latest research on multi-year, first-use payday loan borrowers provides conclusive evidence that payday loans are not short-term debts. Rather, their data shows payday loans evolve into a spiral of long-term, recurrent, and escalating debt patterns.”  

Rev. Dr. DeForest Soaries, pastor of First Baptist Church of Lincoln Gardens in Somerset, New Jersey and profiled in Almighty Debt, a recent CNN documentary, also commented on the new research findings: “Reputable businesses build their loyal clientele by offering value-priced products and services. Customers choose to return to these businesses. But payday lenders build their repeat business by trapping borrowers into a cycle of crippling debt with triple digit interest rates and fees. Lenders should be completely satisfied with a 36 percent interest cap.”

To address the problem of long-term payday debt, CLR recommends that states end special exemptions that allow payday loans to be offered at triple-digit rates by restoring traditional interest rate caps at or around 36 percent annual interest. A 36 percent annual interest rate cap has proven effective in stopping predatory payday lending across seventeen states and the District of Columbia. Active duty service members and their families are also protected from high-cost payday loans with a 36 percent annual cap.

In addition, CRL notes that both states and the new Consumer Financial Protection Bureau at the federal level can take other steps such as limiting the amount of time a borrower can remain indebted in high-cost payday loans; and requiring sustainable terms and meaningful underwriting of small loans generally. 

Further information on the report is available at:

For more information: Kathleen Day at (202) 349-1871 or; Ginna Green at (510) 379-5513 or; or Charlene Crowell at (919) 313-8523 or

# # #

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.

Committee Vote a Win for Industry, Loss for State’s Consumers

16 02 2011

Business as Usual for Payday Lending, Committee Vote a Win for Industry

House Banking & Insurance Committee’s first vote on a 36% cap for payday loans falls short in delivering a proven solution despite public opinion and hard facts. 

Today, the House Banking and Insurance Committee came within a few votes of fixing a defective consumer product for Kentucky.  Instead, the state’s first vote on a 36% rate cap on payday loans guarantees another year of burdening families with 400% interest rate debt – and another highly profitable year for payday lenders. A small number of Committee members voting to pass House Bill 182 could have made all the difference.

Those Committee members voting to support HB 182 clearly heard the facts, responded to public concern and voted the wishes of their constituents. They stood for the economic recovery of Kentucky families rather than the triple-digit rate return for out-of-state payday lenders.

Today, the industry won and Kentucky’s working families lost.  Payday loans will continue to be a defective financial product trapping consumers in a cycle of debt.  Although 73% of KY voters supporting the 36% cap, it’s now business as usual for payday lenders. And even after being told that some payday lending businesses may close, 50% of those same voters still think 36% is better than 400% interest. It’s clear that the people of Kentucky recognize 400% interest rate loans are a taking advantage of consumers and expect lawmakers to fix it.

According to Anne Marie Regan, KCRL Co-Chair, “Today’s vote is a loss for consumers and common sense across Kentucky. We’ve missed an opportunity for lowering abusive 400% rates in favor of proven solutions to protect our families, just like Congress did for the military and 17 other states (including the District of Columbia) have done for their citizens.”


Finally, despite exaggerated claims by the industry of job loss or lack of consumer alternatives, 400% interest rate payday loans will continue to be a net economic drain to the state. In 2010 alone, Kentuckians paid more than $80 million dollars in payday loan fees – mostly to out -of-state payday companies.  KCRL believes that as long as 400% interest rates clog the market, other safe options that exist will not be able to compete and these safe alternatives will remain out of reach of borrowers trapped in payday loans.

Today’s vote may be a temporary set-back for consumer advocates in the faith-based community, who care about the poor and seek justice, housing advocates seeking to help families get into and stay in their homes, senior advocates seeking protections for the aging, family and children advocates who care about families with children and advocates helping victims of domestic violence and for those in poverty to build assets.

“It’s clear that the people of Kentucky will not accept “business as usual” and want action to limit this toxic product for our working families,” said Lisa Gabbard, KCRL Co-Chair. “We commend Representative Darryl Owens for his work to pass House Bill 182.  Owens and those Committee members voting to pass HB 182 put people first and listened to those voices calling for justice and protecting all our working families,” added Gabbard.

KCRL remains committed to changing state law and protecting consumers and their local economies from exploitive, high-interest payday loans and ending the cycle of debt trapping thousands of Kentuckians.

More on KCRL

Take Action – Support House Bill 182

13 01 2011

Payday Lending Bill Needs Your Voice – Take Action for Kentucky

The push for a 36% rate cap needs your phone call to your state Representative.  The call is toll-free and takes minutes: 1-800-372-7181

Please share this message with your organization’s members and friends.

Quick Updates:

  • KCRL joined with Rep. Darryl Owens for new conference in support of House Bill 182. KCRL released new public opinion polling showing 73% of KY voters support a 36% cap on payday loans.
  • Rep. Jeff Greer, Chair of House Banking & Insurance has rescheduled the HB 182 hearing to Wednesday, Feb. 16 at 10:00 a.m. in Capitol Annex Room 149.
  • Rep. Darryl Owens (Louisville) filed House Bill 182 seeking a 36% cap on payday loans interest rates; 24 House co-sponsors signed-on;
  • House Speaker, Rep. Greg Stumbo (Prestonsburg), is quoted as saying the “data is in on payday lending”;
  • Rep. Jeff Greer (Brandenburg), Chair House Banking & Insurance Committee has publically spoken favorably about hearing HB 182 in B&I Committee;
  • Lawmakers return to Frankfort on February 1 for Part II of their 30-day session;
  • We’ve come this far because of your efforts, and we need to keep getting the message out. 

What You Can Do:  Contact your state representatives before February 1st.

Today, our message is simple:

  • As long as the state permits 400% interest rates on payday loans, families’ economic recovery will be hampered.
  • The database shows that right here, right now, payday loans are long-term debt, not the quick easy fix they claim.
  • Waiting will not help. The new data makes the case for capping the rates at 36%, just as Congress has done for the military and 17 states have done.

Connecting with Legislators:

Call – Governor Steve Beshear: 1-502-564-2611

Call – Senators and Representatives toll-free on their Legislative Message Line:

1-800-372-7181 • TTY Messages 1-800-896-0305 • En Español 1-866-840-6574

Find your representatives in the General Assembly online:

Send your representatives email:

Find KCRL on Facebook

The LRC Message Center is open Monday – Thursday from 7:00 a.m. to 11:00 p.m. and Friday from 7:00 a.m. to 6:00 p.m.  If you are calling your own Representative, make sure to let him or her know you’re from their district.  For each Rep, we’ve listed the counties they represent (below). (Telephone operators will deliver your message to your legislators. 

Action message for the Representative Jeff Greer – Chair Banking and Insurance Committee: The payday loan bill (HB 182) deserves a hearing!

Rep. Greer, Kentucky families deserve strong protection from the high costs of payday loans.  They shouldn’t have to wait.  Please schedule HB 182 for a hearing and support its passage.

Action message for Banking and Insurance committee members (see list below with links)

Please support HB 182, and cap payday loans with a 36% interest rate.  Kentucky families deserve strong protection from the high costs of payday loans.  They shouldn’t have to wait.

 House Banking and Insurance Committee and the counties they represent.  Click through to email them!

Member Counties
Rep. Jeff Greer [Chair] Bullitt, Hardin, Meade
Rep. James R. Comer [Vice Chair] Cumberland, Green, Metcalf, Monroe
Rep. Will Coursey [Vice Chair] Lyon, Marshall, McCracken (part)
Rep. Ron Crimm [Vice Chair] Jefferson (part)
Rep. Mike Denham [Vice Chair] Bracken, Fleming, Mason
Rep. Brent Housman [Vice Chair] McCracken (part)
Rep. Steve Riggs [Vice Chair] Jefferson (part)
Rep. Kevin Sinnette [Vice Chair] Boyd (part)
Rep. Johnny Bell Barren, Warren (part)
Rep. Dwight D. Butler Breckinridge, Bullitt (part), Daviess (part), Hancock, Hardin (part)
Rep. Robert R. Damron Fayette (part), Jessamine
Rep. Ted Edmonds Breathitt, Estill, Lee
Rep. Joseph M. Fischer Campbell (part)
Rep. Danny Ford Lincoln, Pulaski (part), Rockcastle
Rep. Jim Gooch Daviess (part), Hopkins (part), McLean, Webster
Rep. Sara Beth Gregory McCreary, Pulaski (part), Wayne
Rep. Mike Harmon Boyle, Washington
Rep. Dennis Horlander Jefferson (part)
Rep. Dennis Keene Campbell (part)
Rep. Adam Koenig Boone (part), Campbell (part), Kenton (part)
Rep. Brad Montell Shelby, Spencer (part)
Rep. Sannie Overly Bath, Bourbon, Fayette (part), Nicholas
Rep. Ryan Quarles Fayette (part), Scott
Rep. Jody Richards Warren (part)
Rep. Arnold Simpson Kenton (part)
Rep. Wilson Stone Allen, Simpson, Warren (part)
Rep. John Tilley Christian (part), Trigg (part)
Rep. Ken Upchurch McCreary, Pulaski (part), Wayne
Rep. David Watkins Henderson (part)

Put Interest Cap on Payday Loans – Editorial

5 01 2011

Editorial published in Lexington Herald-Leader (1/4/11)

The payday loan industry reported spending almost $120,000 in the first eight months of 2010 lobbying Kentucky’s legislature.

Advocates for the payday loan industry’s prey, er, customers, don’t have that kind of money to get out their message.

But they do have some compelling facts, if only lawmakers can turn down the volume of special-interest money long enough to listen.

The Consumers’ Advisory Council, a body created by the legislature to advise it, is urging lawmakers who convene today to impose a 36 percent interest rate cap on payday lenders.

The council, which held three public hearings last fall, listened to payday lenders, as well. One of the industry’s most persuasive arguments is that the exorbitant fees charged by banks on overdrafts and for services are unregulated and that payday loans are a better deal than paying the bank fees.

But, after considering the industry’s case, the consumers’ council decided it was in Kentucky’s best interest to join 15 other states that have enacted a 36 percent cap on payday loans, the same cap that Congress imposed for the protection of military service members.

Back in 1998, when the General Assembly first regulated payday lenders, one of the main worries was that consumers were being “rolled over” from one high interest loan to the next and incurring insurmountable debt that would lead to bankruptcy.

To address this concern, the legislature limited customers to no more than two loans totaling $500 in a 14-day period.

But the two-loan limit isn’t working, based on information from an electronic database of payday lenders authorized by the legislature last year.

“The data show that the average consumer is trapped in a debt cycle,” wrote Todd E. Leatherman, executive director of the state Office of Consumer Protection, in a letter on behalf of the advisory council to House Speaker Greg Stumbo and Senate President David Williams.

“According to the data, 83 percent of payday loans went to consumers who took out five or more loans at an APR of 391 percent during a five-month period. On a typical loan of $255, this amounts to $90 in fees per month. What is offered to a consumer as a short-term, stopgap loan, often becomes an insurmountable financial burden due to the high interest rate of this product,” Leatherman wrote.

A study released in October by economists at Vanderbilt University and the University of Pennsylvania found payday borrowers are twice as likely to declare bankruptcy as other similarly situated consumers.

Short of imposing a 36 percent cap, the council recommends other protections, such as additional consumer disclosure, allowing extended payment plans and imposing a cooling off period between loans.

Read more:

KY Voices for Springing the Debt Trap

15 12 2010

Ky. voices: Spring payday loan debt trap
Lexington Herald-Leader
December 15, 2010

By Anne Marie Regan and Lisa Gabbard

Kentucky’s new payday lending database is proving that too many consumers are caught in an endless cycle of debt and that a 36 percent rate cap is long overdue. The Herald-Leader’s recent editorial got it right that payday loans create “a perpetual debt machine that grabs borrowers and sucks them in.”

What’s new: Information from the database supports the push for a common sense 36 percent cap. Lawmakers told consumers and their advocates, in 2009 and again in 2010, to “wait and see how the database works.” All the while, payday lenders have continued making loans at up to 400 percent annual interest to consumers desperate for cash to make ends meet.

Kentucky’s database went live in April and has been quietly gathering hard data and adding up the millions of dollars borrowed and fees paid at the 600-plus payday lending storefronts across the state. What the new database confirms is a disturbing and persistent debt trap for consumers that parallels patterns of long-term borrowing in other states. These patterns show that repeat borrowing is the rule, rather than the exception for the payday industry.

The average borrower in Kentucky has taken out 8.6 transactions since January, and 83 percent of payday loan revenues have been generated by borrowers with five or more transactions. Borrowers typically cannot repay in 14 days and end up taking out loan after loan. As a result, the typical borrower will pay $439.50 in fees alone on the average loan amount of $310. The database also confirms how much Kentucky consumers are paying in fees (more than $80 million this year so far), with much of it leaving our local economies and going to out-of- state companies.

While the database is a useful tool for regulators and a first step in enforcing existing state law, it does nothing to help consumers escape the debt trap or lower the 400 percent interest rates. Other states have taken action to do this, and Kentucky should, too. Seventeen other states (most recently Montana) have capped interest at around 36 percent or never legalized payday lending. In 2006, the Department of Defense pushed Congress to pass a law limiting annual interest on payday loans made to military families to 36 percent.

One recent bright spot in this long debate is the Attorney General’s Consumer Advisory Council. It held a series of public hearings this fall and gathered comment on payday loans. What it heard from consumers and their advocates was clear: Waiting for a 36 percent cap on payday loans is costing consumers, their families, local economies and Kentucky too much.

After deliberating, the Council has recommended that the 2011 General Assembly impose a 36 percent interest rate cap on payday lending.

Even with Kentucky’s new database, state law is not protecting consumers from exploitative, high-interest (400 percent APR) loans and the cycle of debt. Now that the database is capturing data about the harmful effects of payday loans, it’s up to the legislature to use this information to spring consumers from this debt trap. The only proven solution is to cap these loans at 36 percent.

Anne Marie Regan and Lisa Gabbard are co-chairs of the Kentucky Coalition for Responsible Lending.

Click here to read the Consumers’ Advisory Council’s Letter to House and Senate Leadership recommending a 36% APR to help consumers.CAC Letter_Sen_Williams_Rep_Stumbo_12-09-10

See the Herald-Leader online version:

State’s Consumers’ Avisory Council Votes to Approve 36% Payday Lending Cap

12 12 2010

Consumers’ Advisory Council Calls on Lawmakers for 36% Cap on Payday Loans

Capping interest rates at 36% in best interest of Kentucky.

The Consumers’ Advisory Council (CAC) voted Dec. 9th to officially recommend legislation capping interest rates on payday loans at 36% APR. In a letter to House and Senate leaders, the Council concluded that a rate cap is “in the best interest of Kentucky.” The Council’s recommendations are expected to boost consumer groups’ and lawmakers’ continued push for a 36% cap in the 2011 General Assembly.

“We applaud the Council’s work and for recognizing the harm of a loan product that carries 400% interest rates – and the urgent need to protect consumers,” said CLOUT Board Member, Jimmy Mills.  “There is broad statewide support for lowering abusive 400% rates in favor of a common sense 36% cap for payday loans, just like Congress did for the military and 17 other states have done,” said Anne Marie Regan, senior staff attorney for Kentucky Equal Justice Center and co-chair of the Kentucky Coalition for Responsible Lending (KCRL).

At a series of three public hearings called for by CLOUT (Citizens of Louisville Organized and United Together) in Newport, Lexington, and Louisville, Council members heard personal accounts of consumers being caught in payday lending’s cycle of debt.  Consumer advocates, using data from the state’s new payday loan database, testified that both the numbers and stories show that the typical payday loan results in long term debt, not a quick financial fix.

“Data from the state’s database shows that the average borrower in Kentucky has already taken out 8.6 loans this year, translating into more than $80 million in fees alone” said Pendleton County resident Brigitte Blom Ramsey, Director of Special Projects at Kentucky Youth Advocates.  “These fees represent a loss of valuable financial resources to Kentucky families and communities, with the vast majority of the money going to out of state payday lenders.” 

The new Kentucky data also showed that at least 83% of payday revenue has been generated by borrowers with five or more transactions this year. In contrast, just 2% of payday revenue is generated by customers who only used one loan.

The Council’s letter also noted additional measures, such as, a cooling off period between loans, extended payment plans, and enhanced consumer disclosure. However, at the same time the Council recognized other states’ experience showing these same measures “appear to be ineffective” to address consumers’ needs once caught in the cycle of debt created by payday loan’s high interest rates.

In other states where 400% interest payday loans are is still allowed, repayment plans and cooling off periods fail to lower the costs of loans or change patterns of repeat borrowing.

KCRL with some 65 other organizations and supporting legislators will seek a 36 percent cap in the 2011 General Assembly. 

 “Payday loans are not an answer to the financial emergencies that are hitting Kentucky families. When families get sucked into the debt trap and are forced to pay excessive fees every two weeks it directly affects their ability to meet their monthly obligations such as rent or mortgage payments, utilities, and essential needs of their family,” said Penny Young, Executive Director of the Homeless and Housing Coalition. “These loans are predatory and take advantage of our most vulnerable populations. It’s time for our legislators to take action and follow the consumer advisory council’s recommendation for a 36% cap.”