Stop the Cycle of Payday Lending Debt in Kentucky!

26 02 2009

Working Kentuckians lose millions of dollars annually in fees paid for short-term payday loans. Despite the toll on Kentucky families, the number of payday lenders in the state more than doubled between 1999 and 2007.   


Ÿ       Payday loans are costly for Kentucky families. Kentuckians lose $131 million annually in fees to payday lenders. Over 40% of borrowers believe payday loan rates are less than 30% APR, when in fact rates in Kentucky exceed 400% APR.

Ÿ       Nine out of ten payday loans are made to repeat borrowers who take out five or more payday loans in a year. The short timeframe of payday loans means Kentuckians are often unable to pay off the loan principal and end up rolling over the loan or paying one off to take out another immediately.

Ÿ       The U.S. Department of Defense pushed for changes in federal law to cap interest at 36% APR for military families. The Department of Defense recognized that payday loans were leading to significant debt for members of the military, putting them at risk of losing their security clearance. Congress acted on their recommendation and the law took effect on October 1, 2007.

Ÿ       Voters in Ohio upheld the state’s new law implementing a 28 percent cap. In November 2008, 64 percent of Ohio voters supported the implementation of a 28 percent cap on payday loans. The referendum won in 87 of 88 counties in Ohio. Arizona voters in November also chose to allow the law to sunset that authorized payday lending in their state. Currently, 15 states (including border states Ohio and West Virginia) and the District of Columbia have laws capping rates or do not authorize payday lending.

Ÿ       Arkansas’ Supreme Court found payday lending to be unconstitutional. In 2008, the Supreme Court of Arkansas delivered an opinion that payday lending violates the 17% usury limit in the state’s constitution.

Ÿ       Strong legislative action is needed to make payday loans reasonable. Virginia enacted a law in 2008 which attempted to address concerns with payday loans. Without a cap on the interest rate, payday lenders have begun offering other similar high-cost products, and Virginia legislators are now working on additional legislation to close loopholes.

Ÿ       Legislative action can help families – without additional state budget expenditures. The Kentucky Coalition for Responsible Lending recommends revising KRS Chapter 286 Subtitle 9, the statue that regulates check cashing and deferred deposit transactions (payday loans) with the following changes:

o      Substitute the term “short-term loan” for deferred deposit transactions;

o      Limit interest on short-term loans to 36% annual percentage rate;

o      Limit borrowers to one short-term loan at a time, up to $500;

o      Extend the minimum term of a short-term loan to 30 days;

o      Limit borrowers to one short-term loan every 90 days;

o      Prohibit licensees from making short-term loans by telephone, mail, or internet: and

o      Provide for enforcement by the Office of Financial Institutions or Attorney General, and allow borrowers to take legal action if loans violate the statute.



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