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.”