State’s New Database Shows Payday Debt Trap Continues

21 10 2010

New Data and Personal Stories Show Continued Cycle of Debt

Kentucky’s Consumers’ Advisory Council hears testimony from state regulators, consumer advocates and personal stories from consumers on payday lending practices.

The first of three public hearings (Oct. 14) on payday loans by the state Consumers’ Advisory Council drew a crowd of some 100 persons and local media in Louisville’s St. Michael Catholic Church. The testimony from representatives with the Department of Financial Institutions, CLOUT (Citizens of Louisville Organized & United Together), Kentucky Coalition For Responsible Lending and local consumers outlined the case that the payday lending debt trap continues.

Although invited, deferred deposit industry representatives declined to attend the hearing. Wednesday’s public hearing provided the first glimpse into the findings of the database enacted following the 2009 General Assembly (House Bill 444). Kentucky’s real-time payday lending database went online in April 2010. It’s intended to ensure lenders are complying with state law by limiting the number and amount of payday loans to consumers.

The newly released data shows that the debt trap is alive and well in the Commonwealth. Data presented by the Department of Financial Institutions, the government agency charged oversight of the database, revealed two key findings among the information presented:

1) 1.5 million payday transactions were made in 2010, but to only 182,000 borrowers. This means there have been more than 8 transactions per borrower in this year alone.

2) These 182,000 borrowers paid over $80 million in fees to mostly out of state payday lenders in 2010. This means that on average a borrower has paid over $400 in fees in 2010. This data reveals that the debt traps persist in Kentucky and parallels patterns of long term borrowing found in other states and industry data. These patterns show that repeated borrowing is rule, not the exception, for the payday industry nationally and here in Kentucky.

 The Council heard compelling stories of four mothers who have endured devastating experiences with payday loans, some of which occurred even now with the database in place. One consumer, Tonia, a member of Louisville’s Making Connection network, “spoke from the heart” about how her family has been stuck in one single $500 loan since August, having to pay $88 in fees every two weeks with none of it being used to payday the actual loan. She noted that the interest is just driving her deeper and deeper into debt, with no clear break in the cycle in sight.

The new state database doesn’t provide Tonia that break; it simply will track her debt trap, but will do nothing to solve it. Even with the  database, state law does not protect consumers from exploitive, high-interest (400% APR) payday loans in Kentucky.

Consumers and local economies across every Kentucky County lose millions of dollars each year to out of state corporations. The General Assembly can change this, protect consumers and stop the loss of potential tax revenues by enacting a 36% interest rate cap in its 2011 Regular Session.

The Council’s two remaining public hearings are scheduled:

Lexington – October 27th  2:00-4:00 p.m.

Location: Shiloh Baptist Church, 237 East 5th Street ~ 40508

Newport – November 9th   1:00 -3:00 p.m.

Location: Brighton Center, 741 Central Avenue ~ 41071

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2 responses

28 10 2010
Repeat Borrowers Are Driving Payday Loan Business « The Edit: WFPL's Gabe Bullard blogs the news

[…] may not be the most shocking headline, but the statistics say it’s true (Kentucky now tracks payday […]

4 02 2011
Jeannette Hilpp

I am against getting rid of these businesses. Many people depend on them for various reasons. I realize too, that it is so easy to get suckered into using them and that it can be hard to stop using them. By lowering the amount borrowed each time a person goes in, they can eventually get out from going to these businesses. If anything, I think the interest they charge should be lowered. Also, if you close down these businesses there will be even more people out of work adding to the unemployment rate. Please rethink your plan to close down these businesses. Not everyone can get a loan from a bank and these businesses provide another means to getting a loan.

Thank you,
Jeannette Hilpp

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