Final Public Payday Lending Hearing Shows Troubling Trends

10 11 2010
 
Consumers’ Advisory Council Completes Final Public Hearing
    
 New payday loan database shows disturbing trends for N. Kentucky.
 
In the northern Kentucky counties of Boone, Campbell, Kenton, Carroll, Grant, and Pendleton 49 payday lending operations have charged families more than $7.4 million in fees in the first nine months of 2010. A large portion of the fees paid to payday lenders leaves local communities as the majority of payday lenders in Kentucky are nationally owned and take their profits with them.

“While Kentucky’s database is an important tool in understanding the impact of payday lending on Northern Kentucky and the state, it does nothing to stop the debt trap,” said Pendleton County resident Brigitte Blom Ramsey, Director of Special Projects at Kentucky Youth Advocates“Rather, the data shows disturbing trends for consumers’ cycle of debt, directly contradicting claims that payday loans are for short-term quick cash.”

The new state data confirms the consumers’ stories shared at the series of hearings are the rule not the exception. One Kenton county resident, a single mother from Covington, whose testimony was shared at the hearing showed how just two small payday loans totaling just $500 resulted in months of indebtedness, hundreds of dollars in payday loan fees and overdraft fees charge by the bank, abusive debt collection practices, and eventually bankruptcy. The current state law does not curb these types of abuses.

Following passage of new state law in 2009 (HB 444), the Department of Financial Institutions launched a statewide payday loan database tracking consumer usage and ensuring users did not take out more than two loans at one time.

In the first nine months of 2010, the data show that borrowers are still stuck in long term debt, and the payday lenders generate the bulk of their revenue from trapped borrowers. Kentucky 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.

“The successful implementation of the state’s new database has provided accurate Kentucky data about the pervasive debt trap, but it does not protect consumers from exploitative high-interest payday loans,” said Anne Marie Regan, senior staff attorney for Kentucky Equal Justice Center. “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 17 other states have done,” said Regan, who also serves as co-chair for the statewide Kentucky Coalition for Responsible Lending.

On November 2, Montana became the 17th state to cap the rate at 36% when 72% of voters approved a ballot measure to lower 400% interest rates on payday loans to 36%.

The Consumers’ Advisory Council is now expected to consider its findings and future recommendations over the coming weeks.

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