Guest Op-ed – Protect Consumers in 2012

7 02 2012

Cap payday-loan interest rates at 36%

By Anne Marie Regan and Lisa Gabbard

As co-chairs of the Kentucky Coalition for Responsible Lending, a statewide coalition dedicated to protecting family assets by eliminating abusive financial practices, one of our major concerns is the high cost of payday lending.

Payday lenders are permitted to charge an annual interest rate of 400 percent. For several years, our coalition has sought a change in Kentucky law that would cap interest rates on payday loans at 36 percent. We are hopeful that the Kentucky legislature will enact this much-needed change in the 2012 General Assembly.

Opposition to high-cost lending is an issue of concern to the broad and diverse group of organizations throughout the state that make up our coalition. Those working to fight against these abuses include wellrespected groups such as AARP, the AFL-CIO, the Louisville Urban League, the Family Foundation and the Louisville/Jefferson County Branch of the NAACP. In addition, a significant number of churches and faith-based groups ² the Kentucky Council of Churches, Catholic Charities, the Catholic Conference of Kentucky, the Jewish Community Relations Council, Citizens of Louisville Organized and United Together, Building a United Interfaith Lexington, Habitat for Humanity and the Society of St. Vincent de Paul  have spoken out against the harmful rates charged by these lenders. 

Protect Kentucky Consumers

Recently, the Kentucky Baptist Convention, the state’s largest religious denomination, passed a resolution at its annual meeting encouraging Kentucky to establish an interest-rate cap of 36 percent on all small loans. The convention cited passages from the Bible condemning usury and asserting the proper role of the government to protect people from predatory activity. The convention also cited data from Kentucky’s payday-loan database, collected over a full year by Kentucky’s Department of Financial Institutions.

In spite of the industry’s claim that payday loans are shortterm debts, the data prove otherwise. A typical Kentucky borrower took out 10 payday loans in the past year and was indebted by those loans for an average of 160 days. Because of the short repayment terms, typically 14 days, the average borrower is unable to repay in full and has to take out another loan to repay the first. In effect, the borrower is paying another $45 every two weeks to borrow the same $300. After 10 such renewals, the borrower will have paid $450 in interest on a $300 loan.

Nationally, 75 percent of all loans are churned in this manner. Because payday loans in most cases turn out to be long-term debts, an annual rate of interest is an entirely appropriate and accurate measure of the cost. In fact, Kentucky and federal law both require that interest be calculated on an annual basis and that the annual percentage rate be stated in the payday-loan contract.

The business model of the payday-loan industry is to entrap borrowers, through high interest rates and short repayment terms, into a continuous cycle of debt from which it is very difficult to recover.  The Department of Defense was so concerned about the effect on military readiness that Congress passed a 36 percent rate cap on payday loans for military families.

Add your voice and call Frankfort. Tell your representatives to protect consumers and cap payday loans at 36%. Call toll-free 1-800-372-7181. More on the General Assembly at www.lrc.ky.gov 

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Committee Vote a Win for Industry, Loss for State’s Consumers

16 02 2011

Business as Usual for Payday Lending, Committee Vote a Win for Industry

House Banking & Insurance Committee’s first vote on a 36% cap for payday loans falls short in delivering a proven solution despite public opinion and hard facts. 

Today, the House Banking and Insurance Committee came within a few votes of fixing a defective consumer product for Kentucky.  Instead, the state’s first vote on a 36% rate cap on payday loans guarantees another year of burdening families with 400% interest rate debt – and another highly profitable year for payday lenders. A small number of Committee members voting to pass House Bill 182 could have made all the difference.

Those Committee members voting to support HB 182 clearly heard the facts, responded to public concern and voted the wishes of their constituents. They stood for the economic recovery of Kentucky families rather than the triple-digit rate return for out-of-state payday lenders.

Today, the industry won and Kentucky’s working families lost.  Payday loans will continue to be a defective financial product trapping consumers in a cycle of debt.  Although 73% of KY voters supporting the 36% cap, it’s now business as usual for payday lenders. And even after being told that some payday lending businesses may close, 50% of those same voters still think 36% is better than 400% interest. It’s clear that the people of Kentucky recognize 400% interest rate loans are a taking advantage of consumers and expect lawmakers to fix it.

According to Anne Marie Regan, KCRL Co-Chair, “Today’s vote is a loss for consumers and common sense across Kentucky. We’ve missed an opportunity for lowering abusive 400% rates in favor of proven solutions to protect our families, just like Congress did for the military and 17 other states (including the District of Columbia) have done for their citizens.”

 

Finally, despite exaggerated claims by the industry of job loss or lack of consumer alternatives, 400% interest rate payday loans will continue to be a net economic drain to the state. In 2010 alone, Kentuckians paid more than $80 million dollars in payday loan fees – mostly to out -of-state payday companies.  KCRL believes that as long as 400% interest rates clog the market, other safe options that exist will not be able to compete and these safe alternatives will remain out of reach of borrowers trapped in payday loans.

Today’s vote may be a temporary set-back for consumer advocates in the faith-based community, who care about the poor and seek justice, housing advocates seeking to help families get into and stay in their homes, senior advocates seeking protections for the aging, family and children advocates who care about families with children and advocates helping victims of domestic violence and for those in poverty to build assets.

“It’s clear that the people of Kentucky will not accept “business as usual” and want action to limit this toxic product for our working families,” said Lisa Gabbard, KCRL Co-Chair. “We commend Representative Darryl Owens for his work to pass House Bill 182.  Owens and those Committee members voting to pass HB 182 put people first and listened to those voices calling for justice and protecting all our working families,” added Gabbard.

KCRL remains committed to changing state law and protecting consumers and their local economies from exploitive, high-interest payday loans and ending the cycle of debt trapping thousands of Kentuckians.

More on KCRL https://kyresponsiblelending.wordpress.com/





Put Interest Cap on Payday Loans – Editorial

5 01 2011

Editorial published in Lexington Herald-Leader (1/4/11)

The payday loan industry reported spending almost $120,000 in the first eight months of 2010 lobbying Kentucky’s legislature.

Advocates for the payday loan industry’s prey, er, customers, don’t have that kind of money to get out their message.

But they do have some compelling facts, if only lawmakers can turn down the volume of special-interest money long enough to listen.

The Consumers’ Advisory Council, a body created by the legislature to advise it, is urging lawmakers who convene today to impose a 36 percent interest rate cap on payday lenders.

The council, which held three public hearings last fall, listened to payday lenders, as well. One of the industry’s most persuasive arguments is that the exorbitant fees charged by banks on overdrafts and for services are unregulated and that payday loans are a better deal than paying the bank fees.

But, after considering the industry’s case, the consumers’ council decided it was in Kentucky’s best interest to join 15 other states that have enacted a 36 percent cap on payday loans, the same cap that Congress imposed for the protection of military service members.

Back in 1998, when the General Assembly first regulated payday lenders, one of the main worries was that consumers were being “rolled over” from one high interest loan to the next and incurring insurmountable debt that would lead to bankruptcy.

To address this concern, the legislature limited customers to no more than two loans totaling $500 in a 14-day period.

But the two-loan limit isn’t working, based on information from an electronic database of payday lenders authorized by the legislature last year.

“The data show that the average consumer is trapped in a debt cycle,” wrote Todd E. Leatherman, executive director of the state Office of Consumer Protection, in a letter on behalf of the advisory council to House Speaker Greg Stumbo and Senate President David Williams.

“According to the data, 83 percent of payday loans went to consumers who took out five or more loans at an APR of 391 percent during a five-month period. On a typical loan of $255, this amounts to $90 in fees per month. What is offered to a consumer as a short-term, stopgap loan, often becomes an insurmountable financial burden due to the high interest rate of this product,” Leatherman wrote.

A study released in October by economists at Vanderbilt University and the University of Pennsylvania found payday borrowers are twice as likely to declare bankruptcy as other similarly situated consumers.

Short of imposing a 36 percent cap, the council recommends other protections, such as additional consumer disclosure, allowing extended payment plans and imposing a cooling off period between loans.

Read more: http://www.kentucky.com/2011/01/04/1586537/put-interest-cap-on-payday-loans.html#ixzz1A8Y4je9w





KY Voices for Springing the Debt Trap

15 12 2010

Ky. voices: Spring payday loan debt trap
Lexington Herald-Leader
December 15, 2010

 
By Anne Marie Regan and Lisa Gabbard

Kentucky’s new payday lending database is proving that too many consumers are caught in an endless cycle of debt and that a 36 percent rate cap is long overdue. The Herald-Leader’s recent editorial got it right that payday loans create “a perpetual debt machine that grabs borrowers and sucks them in.”

What’s new: Information from the database supports the push for a common sense 36 percent cap. Lawmakers told consumers and their advocates, in 2009 and again in 2010, to “wait and see how the database works.” All the while, payday lenders have continued making loans at up to 400 percent annual interest to consumers desperate for cash to make ends meet.

Kentucky’s database went live in April and has been quietly gathering hard data and adding up the millions of dollars borrowed and fees paid at the 600-plus payday lending storefronts across the state. What the new database confirms is a disturbing and persistent debt trap for consumers that parallels patterns of long-term borrowing in other states. These patterns show that repeat borrowing is the rule, rather than the exception for the payday industry.

The average borrower in Kentucky has taken out 8.6 transactions since January, and 83 percent of payday loan revenues have been generated by borrowers with five or more transactions. Borrowers typically cannot repay in 14 days and end up taking out loan after loan. As a result, the typical borrower will pay $439.50 in fees alone on the average loan amount of $310. The database also confirms how much Kentucky consumers are paying in fees (more than $80 million this year so far), with much of it leaving our local economies and going to out-of- state companies.

While the database is a useful tool for regulators and a first step in enforcing existing state law, it does nothing to help consumers escape the debt trap or lower the 400 percent interest rates. Other states have taken action to do this, and Kentucky should, too. Seventeen other states (most recently Montana) have capped interest at around 36 percent or never legalized payday lending. In 2006, the Department of Defense pushed Congress to pass a law limiting annual interest on payday loans made to military families to 36 percent.

One recent bright spot in this long debate is the Attorney General’s Consumer Advisory Council. It held a series of public hearings this fall and gathered comment on payday loans. What it heard from consumers and their advocates was clear: Waiting for a 36 percent cap on payday loans is costing consumers, their families, local economies and Kentucky too much.

After deliberating, the Council has recommended that the 2011 General Assembly impose a 36 percent interest rate cap on payday lending.

Even with Kentucky’s new database, state law is not protecting consumers from exploitative, high-interest (400 percent APR) loans and the cycle of debt. Now that the database is capturing data about the harmful effects of payday loans, it’s up to the legislature to use this information to spring consumers from this debt trap. The only proven solution is to cap these loans at 36 percent.

Anne Marie Regan and Lisa Gabbard are co-chairs of the Kentucky Coalition for Responsible Lending.

Click here to read the Consumers’ Advisory Council’s Letter to House and Senate Leadership recommending a 36% APR to help consumers.CAC Letter_Sen_Williams_Rep_Stumbo_12-09-10

See the Herald-Leader online version: http://www.kentucky.com/2010/12/15/1567162/ky-voices-spring-payday-loan-debt.html#more#ixzz18BzzwdqX





State’s Consumers’ Avisory Council Votes to Approve 36% Payday Lending Cap

12 12 2010

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.”





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.





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.