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.