Consumer Advisory Council Holds Forum On Payday Lending

by Gabe Bullard on October 13, 2010

The Kentucky Consumer Advisory Council held the first of three public forums on payday lending Wednesday in Louisville. The forums come after repeated calls for more regulation on the payday loan industry.

Payday loans are short-term high-interest cash advances. Because the loans are meant to be paid back quickly, lenders say the interest rates do not compare to the lower rates on long-term bank loans. But Lisa Gabbard with the Kentucky Coalition for Responsible Lending says the rates are too high, and borrowers are often trapped under back-to-back loans.

Gabbard says the interest rates should be capped at the equivalent of 36 percent annual interest. That’s the maximum rate lenders can currently give on loans to members of the military.

“We’ve been accused of trying to put a business out of commission and that’s not at all the case,” she says. “In fact, one of our members of KCRL visited For Knox, which of course is a military community, and found nine payday lenders in operation. So clearly they can operate and make money at 36%”

Todd Leatherman directs the Attorney General’s Office of Consumer Protection. He says the council may call for more regulation on payday loans after the forums.

“This is a council that is interested in the industry, interested in hearing the entire story,” he says. “So we hope to provide a forum where all of the information can be obtained.”

The council will hold forums in Lexington and Newport in the next few weeks.

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{ 4 comments }

John Dunn October 13, 2010 at 5:02 pm

The hardest thing for me to understand is how a payday loan company can really survive on a 36% a year interest rate? if you divide that by 12 = only 3%. So basically, if I go to a payday loan store and take out an advance at 3% for the first $100 loan I would only be repaying 3%.

These loans are unsecured people! It simply cannot work! Maybe for military loans, but not for the typical unsecured payday loan. I think all opponents to payday lending should first analyze these points, and then see if it makes sense or not.

John Dunn October 13, 2010 at 5:08 pm

To add…. one idea that might work however, would be an interest rate on a sliding scale. Loans that rollover for a specific amount of time would have a cap on interest. That might be fare, but to place a cap restriction from the very beginning would not be reasonable in my book.

payday October 14, 2010 at 4:22 pm

The initiative is indeed designed to put the lenders out of business. If the rates are capped at 36%, payday lenders won’t be able to cover the costs of originating a loan. The borrowers will be left with fewer credit options. With the lack of short-term credit alternatives, the consumers will definitely suffer as well.

Scott Nelson October 15, 2010 at 1:37 pm

Payday lending has been in Kentucky since 1992. Prior to that, people found ways to make ends meet. In states that have capped payday lending at a reasonable rate, approximately 40% of lenders have stayed in business. So either way, folks in a bind will have options. And at an affordable APR.

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