Payday lenders suck Kentuckians into a cycle of debt that can be nearly impossible to break, consumer advocates testified at a public hearing Wednesday in Lexington on deferred-deposit loans.
"I constantly see the effects of the debt trap of payday loans," said Bill Embry, a longtime Lexington merchant who also founded St. James Place to provide affordable low-income housing.
Embry said people often tell him they were able to get by until a crisis led them to seek a quick, short-term loan.
But high fees — usually $15 for every $100 borrowed — mean that when the loan must be repaid in two weeks, they come up short and have to borrow again and again.
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"It's like quicksand, and as long as they have 400 percent interest rates, they can't get out," Embry said.
Embry and others read to the Kentucky Consumers' Advisory Council testimonials from borrowers.
The advocates are again pushing for a cap on interest in the next legislative session.
Melissa Fry Konty, a researcher with the Mountain Association for Community Economic Development, said figures released from the first five months of a new state database of deferred deposit transactions show that borrowers in Fayette and surrounding counties already have paid more than $8.5 million in fees.
Nicole Biddle of the Kentucky Department of Financial Institutions said that through September, payday lenders reaped more than $80 million in fees on $486 million in loans.
More than 1.5 million loans were made to only 182,159 borrowers, an average of 8.6 loans per customer during a five-month period.
According to Kentucky statute, only two deferred-deposit loans totaling no more than $500 at a time are allowed. But until the database was implemented, lenders had no way to check to see whether borrowers had excess outstanding loans.
Biddle said that when the database came online in May, more than half of the loans requested were denied the first month.
Todd Leatherman, chairman of the council, said representatives of the deferred-deposit industry were invited to the hearing but declined to testify.