Posts Categorized: Editorial

Op-Ed: End Payday Loan-Sharking

The following op-ed by Rev. Ronald Luckey appeared in the Lexington Herald-Leader on May 3, 2014. 

On Saturday, April 26, a group of concerned citizens from Faith Lutheran Church in Lexington staged a peaceful protest in front of two of the 30 payday lending stores in Lexington.

Carrying signs that read, “Lutherans are Concerned About Payday Lending,” the demonstration was designed to draw attention to a practice that plagues thousands of citizens in Fayette County and throughout Kentucky.

We were encouraged by thumbs-up from passing motorists and by passersby stopping to say, “We’re with you.”

However, we were dismayed to find that all too many of those who came by asked us, “What is payday lending?” The short answer to that question is: payday lending is loan sharking. And, unfortunately, it is legal in Kentucky.

Here’s how it works: Payday loans allow people to borrow money for a two-week period, until the borrower’s next paycheck. These loans are advertised as a quick fix for a financial emergency. The problem is, these loans usually must be repaid in full at the end of two weeks.

In Kentucky, payday lenders may charge as much as $15 for every $100 loaned. Unfortunately, low-income borrowers are often unable to repay their loan at the end of two weeks, so they must immediately take out a new loan with another $15 charged for every $100 owed.

And on and on it goes, resulting in an average annual interest rate of almost 391 percent.

According to statistics compiled by the Kentucky Coalition for Responsible Lending, a typical Kentucky payday borrower was trapped in 10 payday transactions in 2012. Loans are often taken out back-to-back, thus costing $562 in fees alone for a $330 loan.

Borrowers in Kentucky who obtain these two-week loans find themselves actually indebted for over six months a year on average. This is not only a personal and family economic tragedy, diverting money from needed food, clothing, and shelter, but a societal problem as well.

According to 2012 statistics, payday lending drained almost $188 million in fees from Kentuckians’ pockets and into the coffers of mostly out-of-state national payday companies. That’s nearly $200 million that could otherwise be supporting local businesses.

Currently, 22 states (including neighboring Ohio and West Virginia) and the District of Columbia have enacted laws that eliminate or limit the payday debt trap.

The Kentucky Coalition for Responsible Lending is a network of concerned citizens who are working to introduce legislation in the Kentucky General Assembly to cap payday lending rates at 36 percent.

Lutherans, Baptists, Methodists and Roman Catholics, among others, have joined in this effort.

The time is now to end legal loan sharking in Kentucky.

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AARP article: New Loan Sharks

The following article appeared in the AARP Magazine on December 7, 2012. It includes the payday lending experience from Kentuckian, Mary Love.  The New Loan Sharks: Payday Lenders have more Tricks up their Sleevesby John Sandman

Mary Love wants you to know: You don’t have to be poor to be a victim of payday loans. Love, 67, is a divorced LaGrange, Kentucky, resident and a minister in the Presbyterian Church (U.S.A.). When she got her first payday loan in 2003, she wasn’t destitute; she was working for UPS Logistics in Louisville. But she’d fallen behind on her rent.

 Her first loan was for $200. She doesn’t recall the name of the place that sold her the short-term cash advance. “They were everywhere,” she says of the storefront operation. Love wrote a check for $230, including the $30 fee for the cost of the loan. The lender handed her $200 in cash. Two weeks later, Love came back to retrieve the check and repay the loan in cash.
Now, though, she was out of money again. So she wrote the store another check, but for twice as much — $460, including a $60 finance charge for the second loan — because she needed to pay off other bills. This cycle of repeat borrowing spun on for months. By the end of the year, Love says, she’d spent $1,450 in fees. Two years later, with the debt still churning and no end in sight, Love was living rent-free in her sister’s basement and relying on temp work to pay off the loans. Read the rest. 
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C-J’s Better Life Blog: Don’t be fooled by predatory grinches

The following post first appeared in a Better Life, a blog for the Courier-Journal about the aftermath of the recession.  Amy Shir discusses the dangers of the debt trap caused by predatory payday lending.

 Don’t be fooled by predatory grinches

by Amy Shir

Television and radio ads make payday loans sound easy and safe, but unwary consumers can pay more than a thousand dollars on a meager $250 payday loan.

They can also lose access to their bank accounts, have their wages garnished, and get caught in a deep, dark, unmerry debt trap.

Many people are feeling sad and guilty right now because they cannot afford to buy all of the presents their children would like to see under the tree. Before they do something stupid, they should imagine how much more difficult next year’s holiday season will be if their debts are unsurmountable. That is a real possibility if they make the decision to borrow money from a payday lender to pay for Christmas shopping.

TV and radio ads airing in Kentuckiana promoting payday loans fail to mention the potential for those terrible consequences. Messages such as: “Sometimes a little extra cash can really brighten up
your holiday season.” A little extra cash now may cause your lights to be turned off later.

Why would anyone take such a risk? Predatory lenders make their profits off of desperate people who fall for pitches about fast and easy money. The businesses justify their existence by saying they offer assistance
to people facing a crisis such as a medical bill or car repair. Or perceived “crises” such as paying for Willy’s Wii.

KY State law allows payday lenders to charge consumers 400% interest. Kentuckians who believe their elected leaders will protect them from financial abuses should think again. Most state legislators don’t care about anything but the campaign donations they collect from payday lending companies.

Consumers are left to take care of themselves. They can start by switching channels or turning off the TV every time a sleazy elf tries to lure them into financial ruin.

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Turning Poverty Into A Multibillion-Dollar Industry

BROKE USA by Gary RivlinHighlights 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 using the link above.

Buy Gary Rivlin’s book Broke USA on Amazon

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 cashiers 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 cashiers 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 cashiers. 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
Visit Gary Rivlin’s website.

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.”

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