Op-Ed

Feedback: End payday loan debt trap

At issue |Jan. 6 Herald-Leader article, "Bill is again filed to limit interest rates, Owens says database shows 'disturbing trends'"

It's time to cap the interest on payday loans in Kentucky at 36 percent. Seventeen other states have done it, and Congress has done so for military families.

Yet, Kentucky continues to permit these establishments to charge borrowers an annual rate of 400 percent on these loans, trapping consumers in a cycle of debt and draining local economies of millions of dollars — about $80 million in 2010.

State Rep. Darryl Owens, D-Louisville, filed a bill in 2010 seeking to cap payday loans at 36 percent interest. His bill didn't make it. Instead, the state launched a new payday lending database that didn't protect consumers.

Owens has filed his bill again in the current session; House Bill 182 already has at least 25 co-sponsors.

What the new Kentucky database does right is collect hard information on what payday loans cost Kentucky families and local economies. It also shows the profits payday lenders have made and who's taking out these high-cost loans.

The database confirmed what other states learned: The average customer takes out eight loans a year; and these are not isolated emergency loans, but become long-term loans that trap the borrower in an endless cycle of debt.

A growing number of these loans — 13.3 percent of all transactions in 2010 — are being made to people age 60 and older.

Seniors are a low risk because their Social Security and retirement checks deliver a steady monthly income guaranteeing repayment or renewal of the payday cash advance.

AARP Kentucky has been listening to its members' payday-lending stories from across the state. More and more stories surface about how these debt traps are snaring seniors.

For example, one member said she "got mixed up with a payday lender" when she was short on cash to pay her rent. When she added it all up, she realized that it cost her over $5,000 to get free of her first $300 cash advance.

She wishes now she had sought a better alternative or talked with her landlord to work out a deal with him instead.

It is wrong to charge these confiscatory interest rates, and HB 182 offers a proven solution that works.

In 2010, 72 percent of Montana voters approved a 36 percent cap. Arkansas enforces a 17 percent usury cap in its constitution. Ohio capped interest rates on these loans at 28 percent, and an effort to repeal this cap was soundly defeated by the voters in a ballot referendum.

A study of consumers by the North Carolina banking commissioner after the elimination of the payday lenders there found no negative consequences for low-income consumers, and many reported they were glad these high rates and fees were no longer in their communities.

Kentucky needs responsible lenders and not out-of-state corporations draining millions of dollars from our citizens and county economies.

There is broad statewide support for lowering abusive 400 percent rates in favor of the sensible 36 percent cap,

Now that we have concrete Kentucky data about this cycle of debt, it's time to act and pass HB 182 this year. Our legislators have the power now to move forward with a proven reform to spring Kentuckians from payday lending's debt trap.

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