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 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.
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Conversely, in Mason County, which has a population of fewer 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 people who have had to pay fees because they have more than five payday loans.
Most of the lenders in Kentucky are nationally owned.
But a group representing the payday loan industry shot back with its own news release 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 then purchased some of those mortgages, called subprime mortgages, and then sold them to Fannie Mae, which sold them to Wall Street.
But Amy Shir, the chairwoman of the Kentucky Coalition for Responsible Lending, said 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 say the industry can charge as much as 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 it off, creating a cycle of debt.
But those in the payday loan industry say the House should wait for a database of payday loans to take effect before pushing for a cap on loans. Under current law, Kentucky residents are allowed to have only two payday loans. But people currently only have to sign an affidavit saying they don't have more than two payday loans totaling $500 over a two-week period.
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.
"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, 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," he 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 the database 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.