Rep. Darryl Owens joined with members of the Kentucky Coalition for Responsible Lending in calling for a cap on payday loan interest at a press conference February 8. On Thursday of the week before, Rep. Owens filed House Bill 381 which would limit the interest on payday loans to 36% in Kentucky. Currently payday lenders can charge $15 per $100 on a payday loan with a 14 day repayment term. When calculated on an annual basis this interest adds up to between 391 and 459%.

“These places take advantage of the poorest in our society at a time when they need help, not further hardship,” said Rep. Owens. “It is outrageous that Kentucky has not regulated this industry in a more fiscally sound manner. The military has seen the usurious nature of payday lenders and capped the interest rate at 36%. 18 other states have done the same. It is time for Kentucky to do the same.”

According to data from the Kentucky Coalition for Responsible Lending (KCRL), which consists of 64 organizations that represent hundreds of thousands of Kentuckians, most customers cannot repay the loan in 14 days. They pay the loan in full on their payday and then immediately take out another loan. This turns the short term loan into a debt trap as the nationwide average loan a customer takes out is nine.

KCRL studies indicate that nine out of ten payday loans are made to repeat borrowers. The average cost of a $350 payday loan to Kentucky consumers is $822.50; $472.50 is interest. Kentuckians lost $158 million in payday loan fees in 2008 and records show that bankruptcy filings increase with payday loan use.

“We are in the middle of the worst recession that we have seen since the Great Depression and we don’t want see working Kentucky families hard earned money stripped away by a predatory financial product,” said Amy Shir, Chair of KCRL. “And during tough budgetary times for the state, this legislation doesn’t cost a thing and it protects Kentucky consumers. This is a win-win bill.”  

Tammy Taylor, an employment counselor in Lexington, got caught in the payday lending trap.  At one point she was repaying loans to up to six lenders at one time. She usually borrowed owed $1,500 in principal and was paying $300 per month in fees.

Taylor said she got so ensnared in payday loans that she had to file for bankruptcy. Taylor, 27 and a single mother of two, said she first got involved in payday loans as a college student when she was short of money and had no other resources.
 
“Ms. Taylor is a tragic example of why we need to curb this predatory practice that costs hard working families approximately $150 million a year,” said Kip Bowmar, Executive Director of Community Action Kentucky and a member of the Kentucky Coalition for Responsible Lending. “We salute Rep. Owens and the 19 co-sponsors on this important legislation and we will work to advance this during the General Assembly this year.”

House Bill 381 would also prohibit a payday lender from engaging in deceptive practices; require lenders to conspicuously display interest charges for services; and require lenders that knowingly violate the 36% interest limit to forfeit the entire interest for the transaction. If the interest has already been paid, the person who paid the interest, or his or her legal representative, may recover twice the amount paid in an action against the lender within 2 years of the transaction.

As of 2008, 95 of Kentucky’s 120 counties were home to 782 licensed check-cashing firms—also known as payday lenders.
“Jefferson County/Louisville-Metro had 132 payday lending licenses in 2008 and paid approximately $26.7 million in predatory fees. That’s just the fees paid by those who took out 5 or more loans,” said Rep. Owens. “12 of these lenders are in my district. It is unconscionable that my constituents have to turn to these predators to help them put food on the table or gas in their vehicles. There are better alternatives.”
Traditional small loans – at 36% or less – from consumer finance companies increased by nearly 40% after the rate cap was enacted in North Carolina. After Congress capped rates for military families at 36%, banks and credit unions increased availability of small dollar loans to meet immediate cash needs of service men and women.

“House Bill 381 is a good first step in finding solutions for cash-strapped Kentuckians, but clearly we need to do more,” said Rep. Owens. “I am proud of this legislation that will help so many people become more fiscally responsible.”