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 


New Report: Payday Loans are gateway to long-term debt

31 03 2011

New CRL Research: Average “short term” loan keeps borrowers in debt for 212 days per year

Center for Responsible Lending
March 31, 2011

Although payday loans are marketed as quick solutions to occasional financial shortfalls, new research from the Center for Responsible Lending shows that these small dollar loans are far from short-term.  Payday Loans, Inc., the latest in a series of CRL payday lending research reports, found that payday loan borrowers are indebted for more than half of the year on average, even though each individual payday loan typically must be repaid within two weeks.

CRL’s research also shows that people who continue to take out payday loans over a two-year period tend to increase the frequency and extent of their debt. Among these borrowers, a significant share (44 percent), ultimately have trouble paying their loan and experience a default. The default results in borrows paying more fees from both the payday lender and their bank.

Federal banking regulators have voiced their concerns about long-term payday loan usage. For example, the Federal Deposit Insurance Corporation (FDIC) has stated that it is inappropriate to keep payday borrowers indebted for more than 90 days in any 12 month period. Yet CRL determined that the average borrower with a payday loan owed 212 days in their first year of payday loan use, and an average of 372 days over two years.

“This new report finds even more disturbing lending patterns than our earlier reports”, said Uriah King, a senior vice-president with CRL. “Not only is the actual length of payday borrowing longer, the amount and frequency grows as well. The first payday loan becomes the gateway to long-term debt and robs working families of funds available to cover everyday living expenses.” 

CRL tracked transactions over 24 months for 11,000 borrowers in Oklahoma who took out their first payday loans in March, June or September of 2006. Oklahoma is one of the few states where a loan database makes this kind of analysis possible. CRL then compared these findings with available information from regulator data and borrower interviews in other states.   

According to Christopher Peterson, a University of Utah law professor and nationally-recognized consumer law expert, “The Center for Responsible Lending’s latest research on multi-year, first-use payday loan borrowers provides conclusive evidence that payday loans are not short-term debts. Rather, their data shows payday loans evolve into a spiral of long-term, recurrent, and escalating debt patterns.”  

Rev. Dr. DeForest Soaries, pastor of First Baptist Church of Lincoln Gardens in Somerset, New Jersey and profiled in Almighty Debt, a recent CNN documentary, also commented on the new research findings: “Reputable businesses build their loyal clientele by offering value-priced products and services. Customers choose to return to these businesses. But payday lenders build their repeat business by trapping borrowers into a cycle of crippling debt with triple digit interest rates and fees. Lenders should be completely satisfied with a 36 percent interest cap.”

To address the problem of long-term payday debt, CLR recommends that states end special exemptions that allow payday loans to be offered at triple-digit rates by restoring traditional interest rate caps at or around 36 percent annual interest. A 36 percent annual interest rate cap has proven effective in stopping predatory payday lending across seventeen states and the District of Columbia. Active duty service members and their families are also protected from high-cost payday loans with a 36 percent annual cap.

In addition, CRL notes that both states and the new Consumer Financial Protection Bureau at the federal level can take other steps such as limiting the amount of time a borrower can remain indebted in high-cost payday loans; and requiring sustainable terms and meaningful underwriting of small loans generally. 

Further information on the report is available at:

For more information: Kathleen Day at (202) 349-1871 or; Ginna Green at (510) 379-5513 or; or Charlene Crowell at (919) 313-8523 or

# # #

About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.

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:

Bank On Louisville Launched

6 07 2010

Program to help citizens achieve financial stability

LOUISVILLE (July 1, 2010) – Mayor Jerry Abramson launched a new program this morning to help unbanked citizens—those who do not have a checking or savings account—gain better access to the mainstream banking system, saving themselves and their families thousands of dollars.

Bank On Louisville encourages people to sign up for traditional checking and savings accounts, rather than relying on fringe financial services, such as check cashing companies and payday loan providers. It’s estimated that fees from those services add up to more than $40,000 over the working lifetime of one individual.

“Bank On Louisville can help change the financial future for hundreds of families citywide,” Abramson said. “By simply opening a checking account citizens can eliminate high fees for payday loans and other services that will save them thousands of dollars.”

Local community organizations, banks and credit unions, and government agencies, including Metro Louisville’s Economic Development Department and Metro Human Services, are working together to reach the unbanked and underbanked citizens of Louisville.
Eleven banks, more than 40 community organizations and eight government partners, including Metro Government, FDIC and the Federal Reserve, have committed to Bank On Louisville. More partners are expected to sign on as the program continues to grow.

An important component of Bank On Louisville is the financial education opportunities it provides. In addition to classes and support through many of the banking and community organization partners, Bank On Louisville also offers the Start Fresh program. It assists citizens who have had a less than positive experience or history with banks in the past.

The Start Fresh program offers basic financial education classes that will guide participants through the banking process and help them avoid the pitfalls of overdrafts and mismanagement.

The public is invited to learn more during two upcoming Bank On Louisville informational sessions. A variety of financial institutions and community organizations will be on hand to provide information, education and answer questions. Refreshments will be provided.

•  July 13th, 3pm-7pm, Northwest Neighborhood Place, 4018 W. Market St.
•  July 14th, 3pm-7pm, TBA

You can also learn more about Bank On Louisville by visiting Bank On Louisville or calling Metro Call 311.

Louisville was one of eight cities selected to receive a technical assistance grant from the National League of Cities. The year-long grant provided the expertise of the NLC as well as other cities that have launched Bank On programs to develop Bank On Louisville.

San Francisco was the first city to launch a Bank On program in 2005. Since then, 70 cities nationwide have launched their own program or are currently developing one. For information, please visit

Bank On Louisville sponsors, bank partners and community partners include:

Louisville Metro Government      PNC Bank
Metro United Way                             Park Community Federal Credit Union
First Capital Bank of Kentucky      BB&T
Fifth Third Bank                                 Doe Anderson
Clear Channel Radio                         Federal Reserve Bank of St. Louis
FDIC                                                 National League of Cities
Old National Bank

BB&T                                                      Chase                                                   
Commonwealth Bank & Trust         Fifth Third Bank                                
First Capital Bank of Kentucky       L&N Federal Credit Union
Old National Bank                              Park Community Federal Credit Union
PNC Bank                                               Republic Bank
Your Community Bank

Louisville Asset Building Coalition            National League of Cities
Louisville Urban League                               Family and Children’s Place
CLOUT                                                         Women 4 Women
Dare to Care                                             Jewish Family and Career Services
Americana Community Center        Volunteers of America
Society of St. Vincent de Paul           Community Coordinated Child Care
Goodwill Industries                               Family Scholar House
Shively Area Ministries                        Neighborhood Place
Legal Aid Society                                     Center for Women and Families
Eastern Area Community Ministries        ElderServe Inc.
Bellarmine University        Making Connections Network                        
New Directions Housing Corp.           Catholic Charities                           
Salvation Army                                         Junior Achievement of KY                
Tree of Life Aftercare Program           Center for Accessible Living             
Center for Nonprofit Excellence         Wesley House Community Services        
The Housing Partnership, Inc.             YMCA of Greater Louisville
Boys/Girls Clubs of Kentuckiana          Louisville Central Community Center       
Cathedral of the Assumption                  East Louisville Community Ministry     
Highlands Community Ministries          So. Louisville Community Ministries
St. Matthews Area Ministries                   St. Peters United Church of Christ
Metro United Way                                        West Louisville Business Association
Doe Anderson                                                Clear Channel Radio
American Red Cross Louisville Area Chpt.     Habitat for Humanity of Metro Louisville
Plymouth Community Renewal Center

Ky Dept. of Community Based Services     Office of Congressman John Yarmuth
Federal Reserve Bank of St. Louis         Metro Call 311
FDIC                                                                  Internal Revenue Service
Louisville Metro Human Services        Louisville Metro Economic Development

Turning Poverty Into A Multibillion-Dollar Industry

8 06 2010

Highlights from NPR and WHYY’s Fresh Air Program Interview with Author and Journalist, Gary Rivln.

Download the Fresh Air podcast or listen to the WHYY story online.

On why payday loan operations exist in poorer neighborhoods

“[Payday loan operations] are there because banks have fled certain neighborhoods — it’s working-class neighborhoods, inner-city neighborhoods, some rural neighborhoods. Where can you get your loan? You go to a payday lender, you go to a consumer finance shop [or] you go to a pawnbroker. To me, the real reason payday has grown like it has is more of an economic reason than a geographic reason. There’s been stagnating wages among the lowest 40 percent [of wage earners] in this country, and so they’re not earning anymore real dollars. At the same time, rent is going up, health care is going up [and] other expenses are going up, and it just becomes harder and harder and harder for these people who are making $20,000 [or] $25,000 [or] $30,000 a year to make ends meet. And the pay lenders are really convenient. Between going home from work and going shopping, you can stop at one of these stores and get instant cash in five minutes.”

On how the payday lenders, pawnbrokers and check cashers see themselves

“They tend to cast themselves as noble. You know, ‘We’re in neighborhoods doing business where others don’t go.’ It’s almost heroic because they’re brave enough to be doing business — they cast themselves as providing an essential service for the person who otherwise would be trapped. What do you do if your car breaks down and you owe a few hundred dollars, or you need to pay the auto mechanic a few hundred dollars and you don’t have a rich uncle to hit up [or] a credit card? The credit lenders claim that they play an essential role in helping these folks.”

On how the payday lenders, pawnbrokers and check cashers see banks

“They were using the banks as a convenient whipping boy. [They were saying] ‘consumer advocates were on our case about the check-cashing fees we charge or about charging $15 for every $100 for a payday loan. Meanwhile hundreds of thousands of dollars were being lent in these subprime loans, and it virtually blew up the global economy.’ So it was a very handy whipping boy, but the banks have been the best thing happening for the payday lenders and check cashers. They fled these communities, creating the opportunity. But more than that, it’s the big banks — the main banks, from Goldman Sachs to Wells Fargo to Wachovia to Bank of America and Citibank — that funded these industries. Whether it’s the subprime credit card industry, the payday lenders — they provided the funding and eventually helped bring some of these companies public.”

Broke USA: From Pawnshops to Poverty, Inc. — How the Working Poor Became Big Business By Gary Rivlin Hardcover, 368 pages HarperBusiness List price: $26

On the profit margins in the payday loan industry

“Until recently, they were making profit margins of 20 percent to 25 percent a year. I used to write about Silicon Valley for The New York Times. You would get noticed in Silicon Valley if you were making profits of 20 percent [or] 25 percent a year — and at the same time growing in double digits year after year. To me, the moral point is: Sure, there’s nothing wrong with doing business in the inner city or working-class community in a rusted-out Midwestern town; it’s just that you’re making so much more profit off the working poor than you are over the more prosperous customer. That, to me, is where we get into morally questionable behavior where there’s a profit opportunity.”

On rent-for-loan operations

“You need a bedroom set. You want a flat-screen TV. You just can’t put it on your credit card the way a lot of people could do it. But you want the item. And so you rent it by the week or the month, and after a certain amount of time, typically 1.5 years, it’s then yours, assuming you made every payment along the way. The genius there is [rent-for-loan operators] have figured out how to sell a $500 television set for $1,200. And their customers tend to be happy — they want the TV, there’s no other alternative that they can figure out to buy it, so they rent it by the week and if there’s a happy ending — if they made all the payments — then they get to keep it.”

Read an Excerpt: ‘Broke USA’

by Gary Rivlin

Chapter One:

A Greater Share of Wallet

Las Vegas, 2008

The stomping piano chords and tambourine slaps blaring over the loudspeaker are at once familiar. They are the opening notes to the early Motown hit, “Money (That’s What I Want).” The nation’s check cashers and payday lenders have a dangerously low sense of irony, I mused. We are a respectable business, their leaders have been saying since the founding of the National Check Cashers Association in the late 1980s.

Read more…

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.