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Kentucky Faith Leaders Push Bill to Prevent Unfair Payday Loan Practices

Media Contacts: Robert Owens, 502-797-6870, clout@bellsouth.net; Dustin Pugel, 859-367-0152, dustin@thedartcenter.org

Kentucky Faith Leaders Push Bill to Prevent Unfair Payday Loan Practices

Coalition seeking to prevent local economies from losing millions of dollars in revenue while consumers struggle with high interest fees and cycle of debt. 

Frankfort, KY – Today, a broad, interdenominational coalition of the Kentucky faith community joined by dozens of consumer groups across the state calling on the Kentucky legislature to pass Senate Bill 32, introduced by Senator Alice Forgy Kerr to cap payday loan interest rates at 36%. The current average interest rate on payday loans in Kentucky is over 300%. The 36% rate cap bill would build on 2010 reforms that created a database documenting the debt trap of payday lending, but does nothing to protect families from falling into the trap. Since 2010, more families have been trapped by usurious predatory payday lending than ever, draining over $121 million a year out of Kentucky’s economy.

Much of the $121 million a year in fees collected in Kentucky by payday lenders flows out of the state. The largest Kentucky payday lender, Cash Express, is headquartered in Tennessee. Advance America, the second largest, isn’t even a U.S company—it’s owned by a Mexican bank. The drain hurts entire communities, sapping people of funds they could use to invest in their futures, and draining disposal income from local stores and small businesses.

“People of faith should be deeply troubled that the 2010 law allows the plague of modern-day usury to continue unchecked. We hope lawmakers agree that the Bible’s prohibition against usury is very clear and that preying on our state’s most vulnerable citizens is clearly wrong,” Rev. ​Richard Gaines, Pastor of Consolidated Baptist Church in Lexington said.

“Payday lenders market their products as a one-time quick fix, but they are a debt trap by design, and the legislature should act to protect Kentucky’s families and Kentucky’s economy,” added Marian Taylor, a Presbyterian who serves as the executive director of the Kentucky Council of Churches.

Most payday loan borrowers end up trapped in debt because they cannot pay off high-interest loans and cover their normal living expenses. The borrower is forced to take out loan after loan after loan, incurring new fees each time. The problem has only gotten worse since the reform measure passed in 2010.   In 2013, predatory payday lenders took in $121 million in fees, an increase of 15% since 2010. Payday Lenders are also charging more—the average fee paid by a payday loan borrower has risen $44, from $529 to $573. Over 93% of payday loans were generated by borrowers taking out five or more loans a year—for a product marketed as a one-time quick fix.  Only 1% of loans in 2013 went to borrowers who did not borrow again during the year. The average payday loan borrower in Kentucky is stuck in 10 loans per year.

“Most insulting of all, we have seen payday lenders try to get churches to promote their products,” Dr. Hershael York, Pastor of Buck Run Baptist Church in Frankfort said. “Last year, payday lenders showed up to Vacation Bible Schools with promotional goody bags plastered with their company logos inviting churches to promote usury to children and their parents. We want payday lenders to know that we will not be promoting usury. We will be fighting to end it.”

A complete list of the organizations supporting the bill to cap payday loan interest rates at 36% is included below. More about the Kentucky Coalition for Responsible Lending is available, http://kyresponsiblelending.org.

We support 36 % APR on Payday Loans!

Faith Communities

African Methodist Episcopal Church Kentucky Conference

African Methodist Episcopal Church West Kentucky Conference

African Methodist Episcopal Zion Church Mid-West Episcopal District

BUILD (Building a United Interfaith Lexington through Direct Action)

Catholic Charities of Louisville

Catholic Conference of Kentucky

CLOUT (Citizens of Louisville Organized United Together)

Consolidated District of the General Association of Baptists in Kentucky

Christian Church (Disciples of Christ)

Christian Methodist Episcopal Church 2nd Episcopal District

Cumberland Presbyterian Church

Episcopal Church Diocese of Kentucky

Episcopal Church Diocese of Lexington

Evangelical Lutheran Church in America Indiana-Kentucky Synod

Franklin Baptist Association

Jewish Community Relations Council (Louisville)

Kentucky Baptist Convention

Kentucky Baptist Fellowship

Kentucky Council of Churches

Presbyterian Church U.S.A. Mid-Kentucky Presbytery

Presbyterian Church U.S.A. Transylvania Presbytery

Presbyterian Church U.S.A. Western Kentucky Presbytery

Roman Catholic Church Archdiocese of Louisville

Roman Catholic Church Diocese of Covington

Roman Catholic Church Diocese of Lexington

Roman Catholic Church Diocese of Owensboro

St. Vincent De Paul

United Church of Christ Indiana/Kentucky Conference

United Church of Christ Ohio Conference

United Methodist Church Kentucky Annual Conference

United Methodist Church Memphis Conference

United Methodist Church Red Bird Missionary Conference

Union Church in Berea

 

Organizations

AARP Kentucky

Barren River Area Safe Space

Barren River Asset Building Coalition

Bell-Whitley CAA

Bethany House Abuse Shelter

Brighton Center

Center for Economic Development, Entrepreneurship and Technology

Center for Great Neighborhoods of Covington

Center for Women and Families

Central Kentucky Housing and Homeless Initiative

Central Kentucky Coalition for Peace and Justice

Coalition for the Homeless

Community Action Kentucky

Community Ventures Corporation

Eastern Kentucky Asset Building Coalition

Family Foundation

Family Life Abuse Center

Federal Home Loan Banking Cincinnati

Federation of Appalachian Housing Enterprises

Frontier Housing

Gateway Homeless Coalition, Inc.

Green River Asset Building Coalition

Habitat for Humanity, Morehead

Hager Educational Foundation

Homeless and Housing Coalition of Kentucky

Kentucky AFL-CIO

Kentucky Association of Counties

Kentucky Asset Success Initiative

Kentucky Coalition Against Domestic Violence

Kentucky Equal Justice Center

Kentucky Habitat for Humanity

Kentucky Poverty Law Center

Kentucky Resources Council

Kentucky Youth Advocates

Lawrence & Augusta Hager Foundation

Lexington Fair Housing Council

Low Income Housing Coalition of East Kentucky (LINKS)

LKLP Safe House

Louisville Asset Building Coalition

Louisville Urban League

MACED

Merryman House

Metropolitan Housing Coalition

Metro United Way

NAACP – Louisville/Jefferson County Branch

N. KY Community Action Commission

OASIS

People’s Self Help Housing, Inc.

RAISE KY

Safe Harbor

Sanctuary

Sandy Valley Abuse Center

Shelter of Hope

SpringHaven

Urban League of Lexington-Fayette County

Welcome House

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Missouri Lawmakers Pass Payday Loan Bill

Missouri recently passed changes to payday lending laws to  become the latest state to have such legislation. The Missouri Senate Thursday passed a measure to eliminate renewals on payday loans and decrease fees and interest that lenders are allowed to charge.
Read more here.

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While Kentucky Remains Stagnate, Many States Make Progress in Curbing Abusive Lending Practices

Unfortunately, there is little good news to report regarding the increased regulation of the predatory payday lending industry in Kentucky during the 2014 General Assembly. However, at the national level, the trend toward curbing these abusive lending practices continues. A number of state legislatures are tackling this important consumer protection issue during their 2014 sessions:

 

Idaho – The Idaho legislature passed SB 1314 which would restrict payday borrows from taking out loans in excess of 25 percent of their gross monthly income. If the bill is signed by the governor, Payday lenders will be required to offer consumers extended payment plans without charging additional fees or a higher interest rate. The legislation will also limit the number of charges that could be applied to bounced checks written by payday loan borrowers. In the words of Senator Lee Heider (R), the bill’s sponsor, “Fees get out of hand and make it a problem for people to pay back their loans.” SB 1314 “would help those in payday lending to get out of a cycle of payment, fee, payment, fee.”

Alabama – Representative Patricia Todd (D) has introduced a bill that would create a state database to track payday loans in Alabama (Much like the database implemented in Kentucky in 2010) State law already prohibits Alabama borrowers from taking out more than $500 in payday loans at any given time but the law has been virtually unenforceable due to a lack of oversight; the creation of the statewide centralized database will permit this law to be enforced with greater efficiency. While this legislation stops short of enacting a rate cap or loan limit on payday lending, it does represent increased regulation of predatory lending practices. As Representative Todd notes, “We’re making progress, but we’re doing it incrementally.” The bill has passed the House 93-1 and is headed to the Senate.

Minnesota Representative Joe Atkins (Democratic-Farmer-Labor Party) introduced a bill that would restrict the payday loan industry from lending to consumers who are financially unprepared to repay loans on time. The legislation would also forbid lenders from offering loans to the same borrower more than four times per year. Finally, the bill would also increase scrutiny on the debt collection methods employed by payday lending services. The bill is currently still in committee.

Louisiana – Representative Ted James (D) and Senator Ben Nevers (D) have introduced legislation in both chambers of the state legislature that would cap payday lending fees at an interest rate no greater than 36 percent annually. As Andrew Muhl, director of advocacy for Louisiana AARP, notes, “The goal is to get Louisianans out of a debt trap. We see payday lending as a real drain on Louisiana’s economy.” Both bills are still in committee.

While meaningful progress in the Commonwealth is unlikely to occur during this session, advocates remain hopeful that Kentucky lawmakers will recognize that our state is being left behind in protecting its consumers from the payday lending debt trap and approach the 2015 legislative session prepared to act.

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Four Banks Discontinue Payday Lending Practices

The Center for Responsible Lending (CRL) released a new installment in its State of Lending series entitled Bank Payday Lending last September. The report noted several troubling trends regarding short-term, high-interest financial products offered by a number of well-known national and regional banks. Though offered by established financial institutions, high-interest bank loans can be just as damaging to a family’s financial wellbeing as those offered by storefront payday lenders. Consider the following:

  • The average annual percentage rate (APR) for bank payday loans is 225 to 300 percent.
  • Customers who use bank payday loan products are twice as likely to incur overdraft fees.
  • In 2011, the median bank payday loan borrower took out 13.5 loans and was in loan debt at least part of six months annually.

Fortunately, agencies like the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve have increased their scrutiny of bank payday loans and issued new guidance that directs banks to end abusive lending practices. Banks are responding to these new directives—according to a recent CRL press release, U.S. Bank, Regions Bank, Fifth Third Bank, and Wells Fargo have all eliminated payday lending from their financial services.

If you would like to learn more about how bank payday lending works and why it’s harmful, you can access a free CRL webinar on the subject here.

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New Data Show More Kentuckians were stuck in the debt trap for longer periods of time in 2012 than in 2011

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.”

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