Lawmakers Hear Success of New Payday Loans Database

28 10 2010

State’s New Payday Loan Database is Functioning but Revealing Troubling Trends

Earlier this month, the Interim Joint Committee on Banking and Insurance saw their first glimpse into the workings of the deferred deposit database enacted following the 2009 General Assembly (House Bill 444).  KCRL testified and outlined troubling trends before the Consumers’ Advisory Council second public hearing in Lexington.

Kentucky’s real-time payday lending database is an important tool for state regulators and was a needed first step in gathering facts about the state’s payday lending. Legislators and the Department of Financial Institutions are to be commended on the successful implementation and operation of the database (live in April 2010).

Data presented by the DFI before the B&I Committee, however, also shows disturbing trends for consumers’ cycle of debt contradicting claims that payday loans are for short-term quick cash.

In the first nine months of 2010 alone, KY borrowers on average already had 8.6 loan transactions and have paid $439.50 in fees alone to borrow an average of $310. The new data also shows 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. Further, some 182,000 borrowers have 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.

The data reveals that the debt trap persists in Kentucky and parallels patterns of long term borrowing found in other states and industry data. These patterns show that repeat borrowing in rule, not the exception, for the payday industry nationally and here in Kentucky.

Even with the successful implementation of the state’s new database, state law is not protecting consumers from exploitive, high-interest (400% APR) payday loans and the cycle of debt. Now that the database has provided accurate Kentucky data about the pervasive debt trap, state lawmakers have the power to move forward with proven reforms to spring the debt trap.

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 16 other states have done. 
 

The state’s Consumers’ Advisory Council is holding its final public hearing in N.KY on Tuesday, Nov. 9  from 1:00 – 3:00 pm at the Brighton Center ~ 799 Ann St. in Newport.

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