The payday lending debt trap has gotten deeper. More Kentuckians were stuck in payday loans for even longer periods of time in 2012 than they were in 2011. The number of families trapped by payday loans is growing as well, according to new analysis of data from the Department of Financial Institutions (DFI) and analyzed by the Applied Research and Education Center as an outreach service of Indiana University Southeast. Well over 90 percent (93.3 percent) of payday lending transactions go to borrowers with five or more loans. In 2012, Kentuckians paid $117.9 million in fees for payday lending services. In 2012, over 400 additional borrowers had 30 or more loans bringing the total to 5,282 people trapped for at least 420 days each in these 14 day loans. (Click here for accompanying fact sheet).
Last week the Banking and Insurance Committee received a report from DFI on payday lending data. The DFI report fails to tell the real story about payday loan usage in Kentucky. Their report only outlines how many loans the average borrower had at any one time. Lacking in the DFI report is any data on how many loans per year the average borrower takes out, and how long it takes the average family to get out of debt. Families often end up paying off one loan and immediately taking out another, which is how Kentucky families end up in the debt trap.
“We hope legislators on that committee will take a hard look at the numbers in the report. Payday loans trap struggling families on a treadmill of debt that can lead to a host of negative consequences ranging from closed bank accounts to bankruptcy. These numbers are pretty astounding and illustrate the need to help families get out of the debt trap,” said Katie Carter, co-chair of the Kentucky Coalition for Responsible Lending.
The average days Kentuckians are indebted to payday lenders also increased: from 137 days in 2011 to 202 in 2012, showing that these loans keep families in debt much longer than they are advertised. Over the past decade, more than 20 states have put measures in place to make sure payday loans do not lead to an endless debt cycle that is currently prevalent in the Commonwealth. Kentucky has not taken needed steps to protect family stability and promote financial self-sufficiency. Despite payday loans being marketed as a quick fix, Kentucky data show the opposite: that the typical borrower is stuck in payday loan debt for more than 200 days a year, and pays $562 in fees alone for $330 in loans. Now is the time for legislators to put measures in place to protect hard-working families who are trying to make ends meet from getting trapped by payday loans.
“National trends indicate a desire to help families keep more of their hard earned money. Unfortunately, the Kentucky payday industry is growing by keeping the same people in greater debt,” said Lisa Gabbard, co-chair of the Kentucky Coalition for responsible lending. “Now is the time for legislators to take a hard look at protecting hard-working families by regulating this industry.”