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:


KCRL Guest Op-Ed, Courier-Journal

13 02 2010

Op-Ed | The debt trap of payday loans

By Amy Shir • Special to The Courier-Journal • January 31, 2010

Karen Young from Lawrenceburg borrowed less than $200 from a payday lender to cover her musician husband’s transportation expenses. She repaid it in two weeks but it didn’t stop there. She still needed cash. She wrote a new check to take out a new loan. She got caught in a cycle. The cycle went on for 18 months. Payday loans didn’t help Karen hold off a crisis. They added to her debts. In the end, Karen refinanced her home to pay off what she owed. Along the way, she paid almost 10 times the original payday loan in fees. Karen’s story is common. Loans are taken out back to back, over and over.

The result is a “debt trap.” This isn’t an aberration. It is the intentional business model on which the payday loan industry flourishes. “You’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is,” said Dan Feehan, CEO of Cash America, a major payday lender. The numbers nationally: $25 billion of $29 billion earned by the payday loan industry annually comes from loans taken out back to back. Kentuckians paid an estimated $158 million in fees in 2008. Kentucky payday loan borrowers use an average of nine loans per year and thereby pay an estimated $822 on a $350 loan — a whopping $472 in fees!


The Kentucky Coalition for Responsible Lending was formed to help Kentuckians like Karen. Our 64 member groups include faith-based and senior citizens groups, domestic violence programs helping women re-establish economic stability, youth advocates and more. The solution we propose is the same as Congress already enacted for military families. Call the fees what they are — interest on a loan — and cap the annual interest rate at 36 percent. Fifteen states and the District of Columbia cap payday loan rates — usually at 36 percent APR or less — or never allowed payday lending. (Ohio recently capped rates at 28 percent. West Virginia never allowed payday loans at all.) There’s no reason that Kentucky families shouldn’t have the same protection. This year they might get it. Gov. Steve Beshear has endorsed the rate cap and Rep. Jim Glenn, D- Owensboro, has agreed to sponsor a bill.

Faith-based and senior groups Payday Lending

Why do our members care? The Bible is full of verses that prohibit taking advantage of the poor, and it specifically forbids usury (Exodus 22: 25). Those teachings matter to our faith-based members. When it comes to seniors, AARP reports that payday lenders increasingly target the elderly and people with disabilities. (The monthly cycle of Social Security and SSI disability checks fits the “business model” of repeat loans.)

A study commissioned by The Wall Street Journal found that payday loan stores cluster around government-subsidized housing for seniors and people with disabilities. Our coalition soon will publish a study with maps showing where the stores are located, with ounty data on the burden of debt.


Payday lenders lobbied vigorously in 1998 for the Kentucky law that lets them operate here — and exempts them from interest rate imits of other lenders. We expect they will oppose the 36 percent cap. They may also point to last year’s bill to establish a “database” of payday loans as a reason not to do more.

We disagree. The database is simply a tool to enforce the current limits of two loans totaling $500 at a time. It will not cut the costs of loans. Studies from other states show it will not break the cycle of debt.

Now is the time

Thousands of Kentuckians are losing jobs, filing for bankruptcy or facing foreclosure on their homes. One toxic product shows up amidst much of this suffering: payday loans. The General Assembly can make a real difference by enacting a proven solution. We encourage all Kentuckians to call your state legislators today at 1-800-372-7181. Ask them to enact the 36 percent rate cap on payday loans.

Amy Shir is chairwoman of the Kentucky
Coalition for Responsible Lending. Learn more on the Web

[House Bill 381 is awaiting a hearing in the House Banking and Insurance Committee.]

KCRL Supports House Bill 381-A Proven Solution

9 02 2010

Payday Lending Bill Introduced in 2010 General Assembly

Rep. Darryl Owens joins with Co-sponsors and KCRL to introduce House Bill 381 seeking 36 percent interest cap on payday loans.

FRANKFORT, Ky. – The Kentucky Coalition for Responsible Lending (KCRL) joined with Rep. Darryl Owens (D – 43) and his Co-sponsors to introduce  House Bill 381. The bill seeks to protect consumers from being snared in a spiraling debt trap by enacting a new 36 percent interest rate cap on payday loans.

Marketed as short-term relief in a cash crunch, payday loans in Kentucky carry annual interest rates of 400 percent and regularly catch working people – or those with a steady source of income such as Social Security or a disability check – in a long-term debt trap. Over 40 % of borrowers believe payday loan interest rates are less than 30% APR, when in fact rates in Kentucky are at least 391% APR—and often exceed 400%. Nationwide, 9 out of 10 payday loans are made to repeat borrowers who take out nine or more payday loans in a year—a “cycle of debt”

“We believe this is a needed step to protect Kentucky consumers from a predatory product that costs hard working families approximately $150 million a year,” said Kip Bowmar, Executive Director of Community Action Kentucky and KCRL member organization. “We salute Rep. Owens and the 19 co-sponsors on this important legislation,” added Bowmar.


According to KCRL Chair Amy Shir,“We are in the middle of the worst recession since the Great Depression and we don’t want see working Kentucky families’ hard earned money stripped away by a predatory financial product.” KCRL consists of 64 organizations statewide representing hundreds of thousands of Kentuckians. “And, during tough budget times for the state, this bill doesn’t cost a thing and it protects Kentucky consumers. This is a win-win bill,” said Shir.

Support House Bill 381

Payday Lending Campaign Needs You – Take Action

28 01 2010

2010 General Assembly Pushed to Cap Payday Loans at 36%

KY Consumers Can’t Afford to Wait for Real Protections.  Take Action – Make a Difference!

Payday loans cost Kentucky families too much. The Kentucky Coalition for Responsible Lending supports a cap on payday loan interest rates at 36 percent APR—just like Congress passed to protect our military families.

State Capitol - Frankfort, KY

State Capitol - Frankfort

You can help protect Kentucky families from the payday loan debt trap by calling your state lawmaker today.

 Ask your legislators to:

  • support the 36% payday loan rate cap
  • become a co-sponsor of House Bill 381
  • ask Rep. Jeff Greer to give House Bill 381 a fair hearing in the Banking & Insurance Committee

Call – Senators and Representatives toll-free on the Legislative Message Line:

1-800-372-7181 • TTY Messages 1-800-896-0305 • En Español 1-877-287-3134

LRC Message Center is open:  Monday – Thursday (7:00 a.m. – 11:00 p.m.) & Friday 7:00 a.m. – 6:00 p.m.

Find your legislators online: Send email to legislators

More background:

The Kentucky Coalition for Responsible Lending now includes over 60 Kentucky organizations.  Click here to see facts sheets and personal stories on our 2010 General Assembly resources page. Some of the highlights:

Over 40 % of borrowers believe payday loan interest rates are less than 30% APR, when in fact rates in Kentucky are at least 391% APR—and often exceed 400%

Nationwide, 9 out of 10 payday loans are made to repeat borrowers who take out nine or more payday loans in a year—a “cycle of debt”

There are alternatives:  traditional small loans—at 36% or less—from consumer finance companies increased by nearly 40 percent after the rate cap was enacted in North Carolina.

Learn more about payday loans and find us on Facebook at

Payday Loan Interest Rates – Editorial

21 12 2009

Cap payday-loan interest rates

Editorial published Dec. 20, 2009 – Lexington Herald-Leader

Not that long ago, payday lenders were called loan sharks and what they did was illegal.

Cap Payday-Loans Interest Rates

It’s easy to forget that because the payday-loan industry has amassed so much power and sunk its hooks so deep into the legislature, all in less than 20 years.

Kentucky should join other states, including Ohio and West Virginia, that have turned back the clock on legalized loan sharking.

Fourteen states and the District of Columbia have imposed reasonable limits on how much payday lenders may charge. Without a legal cap, annual interest rates often run above 400 percent.

It won’t be easy. With their market shrinking because of all the new laws, predatory lenders will fight harder than ever to hold on to Kentucky. A few years ago, the state was getting a new payday lender every four days.

It’s obviously a lucrative market — for the lenders.

For borrowers, it’s a road to burial in debt, bankruptcy and homelessness.

Just look at the coalition lined up to support new limits on payday lenders and you get a feel for how wide is the harm inflicted by this industry.

More than 60 members of the Kentucky Coalition for Responsible Lending, from across the state and political spectrum, are lined up in support of limits on payday lending. They include groups that serve the poor and elderly, housing agencies and shelters, asset-building and economic development groups, legal aid, religious groups, advocates for domestic-violence victims, even a couple of financial institutions.

There wouldn’t be such widespread concern if real people weren’t being hurt.

Gov. Steve Beshear is on board. Although Beshear once lobbied for the payday-loan industry, he promised earlier this year to support an annual interest cap of 36 percent on short-term loans. He renewed that promise last week.

As it stands now, three out of four borrowers can’t afford to repay their loans at the end of the two-week period. So they must keep borrowing, and paying exorbitant fees, sometimes until they owe more than they borrowed in the first place.

One advantage of capping the annual interest rate at 36 percent is that borrowers could actually afford to pay off a two-week loan rather than having to keep borrowing.

Beshear noted that Congress imposed a 36 percent cap on loans to military personnel to protect them.

What’s happened since then is instructive. Credit unions stepped up to increase small loans to cover immediate cash needs among military people.

In North Carolina, which did away with payday lending, a study found the loans weren’t missed and that people found alternatives.

The Federal Deposit Insurance Corp. is piloting a small-dollar loan program, encouraging banks to offer affordable small loans as an alternative to predatory lenders.

But banks and other traditional institutions will shy from the short-term, small-cash loan business until the legislature levels the playing field for them by capping rates on payday loans.

The payday loan industry insists that it’s simply filling a demand and saving people from bankruptcy and eviction — which is also what the loan sharks said.

© 2009 and wire service sources. All Rights Reserved.

Deferred Deposits, Delayed Justice?

24 11 2009

2010 General Assembly Facing Tough Issues

From the KY Gazette  (November 2009)

 by Laura Cullen Glasscock at

Deferred Deposits [ 2010 General Assembly]

The provisions of the check-cashing and deferred deposit statutes are currently contained in Subtitle 9 of KRS Chapter 286 that authorizes licensed deferred deposit businesses to charge a service fee not to exceed $15 per $100 borrowed. The service fee is for a period of 14 days. Borrowers may obtain one loan not to exceed $500 at any one time, and rollovers are prohibited. The deferred deposit transaction statutes were amended in 2009, effective July 1, 2010, by House Bill 444 to expand regulation of the industry. The legislation also provides for a 10-year moratorium on licensure of new businesses after July 1, 2009. A review by staff of the Kentucky Office of Financial Institutions annual reports found the number of licensed payday locations in Kentucky increased from 214 in 1998 to 754 currently.

On its face, a $15 fee per $100 borrowed appears to be interest in the amount of 15 percent. However, because of the 14-day loan term, a new loan can be obtained 26 times per year, which results in an annual percentage rate of 391 percent. Reportedly, most borrowers are unable to repay the loan with their next paycheck. As a result, borrowers often take out a new loan before their next paycheck, resulting in an additional fee. Several sources report that 87 percent of new loans are opened within two weeks or before the borrower’s next payday, indicating they are unable to repay the original or previous loan and sustain the cost of living expenses without taking out a new loan. This common practice is referred to as “rollover” Making multiple rollovers, referred to as “churning,” results in an annual percentage rate of 391 percent in Kentucky. Nationwide, churning accounts for 76 percent of the deferred deposit total loan volume.

There are alternative methods of providing small, short-term loans up to $1,000. In an effort to reach the unbanked population, the Federal Deposit Insurance Corporation is currently conducting a two-year pilot program for banks to provide small loans up to $1,000 to borrowers, even if they have poor credit. Thirty-one banks in 15 states are enrolled in the project, including two banks in Kentucky, Citizens Union Bank in Shelbyville and Kentucky Bank in Paris.

Eight Ways to Avoid the Payday Loan Debt Trap

14 09 2009

 Thousands of Americas take out payday loans every week.  These small loans are often used to get the consumer out of a bind- perhaps by paying an overdue bill or helping with the cost of car repairs.  Even though many consumers have the intention of paying the loan back with their next pay check, many are unable to repay the loans on time.  The interest rates on these loans are huge and  thse loans end up costing consumers millions of dollars a year.  Click here to learn eight tips to avoid the trap of payday loans.  Source: