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

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KCRL Releases County by County Payday Loan Study

23 02 2010

New Report Details Economic Cost of Payday Loans in Kentucky Counties

Payday lending debt trap strips Kentucky consumers and their communities, urban or rural, of millions of dollars each year.

KCRL KY Payday Lending ReportThe Kentucky Coalition for Responsible Lending (representing 64 KY organizations) has now released a year-long study on the economic impact of payday lending across the state’s 120 counties. While House Bill 381 remains locked in House Banking & Insurance Committee, KCRL continues to call on Chair Representative Jeff Greer to give the bill a fair hearing.

KCRL’s report, “The Debt Trap in the Commonwealth: The Impact of Payday Lending on KY Counties,” is the first comprehensive look at documenting the economic damage of payday lending in Kentucky counties.

KCRL Chairperson, Amy Shir, said the report delivers concrete facts supporting a 36% cap on payday loans. Shir added, “The people of Kentucky and their communities will be better served by limiting payday loans to a 36 percent rate cap.  It is the right thing to do and is an example of sound public policy.”

Key Findings Include:

• The economic impact of payday lenders is costly in both rural and urban communities. Louisville Metro was home to 132 lenders who collected nearly $27 million in predatory fees in 2008, but the magnitude of impact is even stronger in Mason County, home to less than 10,000 people and 8 payday lenders who collected $1.6 million in predatory fees in 2008.

• The majority of payday lenders in Kentucky are nationally owned and their profits leave the state.

• Payday lenders locate in places where people are most likely to need access to small-dollar short term credit—but low- to moderate-income families are also least likely to be able to repay the loans within the two-week term.

KCRL supports House Bill 381 because it will bring Kentucky in line with the same protections Congress passed to protect military families with a 36% interest cap on most loans.  The county data in this report strongly suggests that Kentucky should consider this an economic priority during the deepest national recession since the Great Depression.

According to Reverend J. Richard Sullivan with CLOUT, “Payday loans violate the biblical mandate against usury, especially when committed against the poor. KCRL represents tens of thousands of Kentuckians who are calling for a 36% rate cap on payday loans—in fact, the largest gathering of citizens last year in Louisville to address any community problem (nearly 1600 people affiliated with CLOUT) was to call for this rate cap—and CLOUT will gather another 2000 in Louisville next month to call for it again.”

The Coalition’s report “The Debt Trap in the Commonwealth: The Impact of Payday Lending on KY Counties” was distributed to all members of the General Assembly and Governor Steve Beshear. The report is expected to assist state Representative Darryl T. Owens (D – 43) and his co-sponsors’ work to pass House Bill 381 calling for a new 36% APR cap on payday cash advance loans.





Live on KET’s Kentucky Tonight Show – Monday, Feb. 15th at 8:00 pm (ET)

14 02 2010

KET’s Kentucky Tonight program with host Bill Goodman will discuss payday loans and House Bill 381

KET's Bill Goodman

KET's - Bill Goodman

 

Join host Bill Goodman and scheduled guests:

State Rep. Darryl Owens, D-Louisville

State Rep. Bill Farmer, R-Lexington

Amy Shir, chair of the Kentucky Coalition for Responsible Lending

Tommy Moore, executive vice president of the Community Financial Services Association of America

KET’s Kentucky Tonight – Monday , Feburary 15th at 8:00 pm to 9:00 (ET)

KET's Kentucky Tonight

Viewers with questions and comments may send e-mail to kytonight@ket.org, including first and last name and town or county for messages to be considered for use on air. Viewers may also use KY Tonight’s web form at KET’s Kentucky Tonight Homepage to send messages.

The phone line for viewer calls during the program is

1-800-494-7605 and opens at about 8:15 pm (ET) Monday, Feb.15

Kentucky Tonight programs are archived online, made available via podcast, and rebroadcast on KET and KET KY. Archived programs, information about podcasts, and broadcast schedules are available at Kentucky Tonight Homepage.