Report: Payday lending fees damage urban, rural areas
FRANKFORT — A new report by a coalition pushing for caps on payday loans shows that Kentuckians are paying millions of dollars in fees to payday lenders in both urban and rural areas.
The report — by the Kentucky Coalition for Responsible Lending — was released Tuesday, the same day as a rally at the Capitol to support House Bill 381. That bill would place a 36 percent rate cap on all interest rates and fees for small, short-term loans, commonly called payday loans.
Some of the findings of the study include:
Louisville has 132 payday lenders who collected $27 million in predatory fees in 2008.
Conversely, in Mason County, which has a population of less than 10,000 people, there are eight payday lenders that collected $1.6 million in predatory fees in 2008.
The study defines predatory fees as those charged to those who have more than five payday loans, the study found.
Most of the lenders in Kentucky are nationally owned.
But a group representing the payday loan industry shot back with its own press release on Tuesday, questioning the motives of some of the national organizations that are pushing for a cap on payday loans.
The Kentucky Deferred Deposit Association — a trade group of payday lenders — said in a release that the Kentucky Coalition of Responsible Lending’s parent organization — the Center for Responsible Lending — was funded by an organization that competes with payday lenders.
One of the Coalition for Responsible Lending’s funding organizations, Self-Help Credit Union, lobbied for banks to make mortgages to people who did not typically qualify. The union than purchased some of those mortgages — called subprime mortgages — and then sold them to Fannie Mae, who sold them to Wall Street.
But Amy Shir, the chairwoman of the Kentucky Coalition for Responsible Lending, said that the group of 64 organizations has no ties to the national group and gets no money from the Coalition for Responsible Lending.
“We’re a home-grown organization,” Shir said. “We have no funding from the national group.”
The Kentucky Deferred Deposit Association also disagrees with some critics who claim the industry can charge up to 400 percent interest on loans. “The fact is consumers are charged a one-time service fee of $15 per $100 borrowed,” according to the written release.
But the Kentucky Coalition for Responsible Lending — which consists of more than 60 social service groups — says that nationally, consumers take out an average of nine payday loans per year. People can’t afford to pay off the first loan and often turn to other lenders to pay off the loans, creating a cycle of debt.
But those in the payday loan industry say that the House should wait for a database of payday loans to go online before pushing for a cap on loans. Under current law, Kentucky citizens are only allowed to have two payday loans totaling $500. Many consumers have more. Those who want a payday loan currently have to sign an affidavit saying they don’t have more than two payday loans.
Rep. Jeff Greer, D-Brandenburg, and chairman of the House Banking and Insurance Committee, said he would hear testimony on how that database was being implemented at the House Banking and Insurance Committee on Wednesday. Greer said Tuesday that House Bill 381 will likely not be heard this legislative session.
“We don’t know if this industry needs to be regulated until we see the data,” Greer said. Greer also noted that there are fees in traditional banking — such as overdraft fees — that are often greater than fees charged on short-term loans.
But Rep. Darryl Owens, D-Louisville, and sponsor of House Bill 381, told those at the rally on Tuesday that collecting data and setting a cap on what payday lenders can charge “are two separate animals.”
Even if people are limited in the number of loans they receive, they “are still paying 400 percent interest,” Owens said.
Kelly May, a spokeswoman for the Kentucky Department of Financial Institutions, said Tuesday that the original bill that included language on the establishment of the database said that it did not have to be created until July 1. The department has hired an outside vendor to develop the database and that database should be online by April — well ahead of schedule, May said.
– Beth Musgrave
Filed Under: Featured • KY General Assembly • State Budget • State Government
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Once again the Kentucky legislature is buying into the “dirty loan” industry argument that they provide as service (stealing of the less fortunate). How can any elected politician let this happen to those who elected them, is beyond my understanting. Payday loan companies don’t have a vote, yet the legislature gives them what they want.
This used to be called “loan sharking”…and it should still be called that, and it should be regulated. Shame on anyone who would charge 400 percent on a small loan………that should be illegal….
Borrow $200, pay back $203. Yep, that’s loan sharking and usury, all right. This must not stand!!!!
every year, kentuckians spend millions of dollars at payday lenders in neighboring states. Why not open it up so those dollars stay in KY?
If this argument is good for expanded gambling, why not for this industry?
I think these places should be limited even more than the proposed legislation. I understand that people should pay their small loans back in time, but I also know some people aren’t intelligent enough to read the fine print and understand the financial trouble they’ll be in if their payments are late. I believe in treating people humanely; making huge profits which can devastate a family is not humane.
With such a small profit margin, it makes one wonder why so many of these places exist – methinks perhaps you misrepresent.
That $3 fee is for the first time only. That is how they reel you in. There is also an issue with online lenders illegally making loans to Kentucky residents. Once they get access to your bank accounts they will deduct just the “fee” to renew each time and make it impossible for you to contact them to pay it all off. They also keep taking and taking even after all is paid. They force people to have to close their accounts to make it all stop. Way to go on trying to regulate this industry. It is the online ones that are the most predatory. If people only knew that they were illegal and that they morally didn’t have to pay back more than they borrowed but, legally don’t have to pay a thing back and their is nothing they can do about it. (As long as they don’t have access to your bank account numbers)
Why not wait for the current legislation to take effect before we jump into anything new. Lots of time and money was spent on it.
Its a database that will cripple the industry. If other states are any example, you will see these places close up shop fairly quickly once it is implemented. I would bet that close to half are gone before we see 2011.
Lets not also forget that the banks will fill the void of the payday loan places. Many already offer a product with rates AS LOW AS 120% APR. Those same products carry rates AS HIGH AS 3650%. They carry little risk to the banks because they are only given to those with direct deposit and the bank takes its fee plus principle before the customer sees any of his paycheck.
borrow 200 payback 203 is still higher than the 36% cap would allow.
I expect the individuals that represent the alliance to stop this industry are a bit wierd and do not appear to be normal.
The KET program was not a good representation for the alliance to stop the payday lenders. Something was just not right with the folks. It was a very odd show that night. If I were a legislator – I would not put much stock in the anti industry folks.
We are all talk no action on this issue.
KY’s largest bank Republic is a big national player mostly in Tax Refund Anticiation at 162% interest.
Jack Conway has solicited thousands in donations from Pay Day lenders for his Senate Campaign
One of the reasons for check advance places to exist is because the banks will NOT give such short-term loans at such low rates. Try going into Central Bank or Fifth Third or Forcht Bank and asking for a loan of $200 to be paid back in two weeks. They will laugh you out of the place.
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