long term payday loans

Ky. Voices: Payday lending entraps people

Even after the presents have been unwrapped and the festive candles put away, many Kentucky families will be paying for Christmas for months into the New Year.

Those who took out payday loans, paying fees that could equal nearly 400 percent annualized interest, will be paying dearly.

We are deeply troubled by the exorbitant and unconscionable interest rates charged by payday lenders and the economic and personal distress this causes individuals and families.

In addition. it concerns us that our commonwealth continues to permit this practice that runs counter to simple morality and collective good judgment.

As pastors, we know many people who struggled their way through the holidays. On top of gifts, if there were any, there were heating bills to pay, rent due and food to put on the table. Payday loans offer a short-term fix while saddling households with long-term debt.

Based on data collected from the state's Department of Financial Institutions database, the typical Kentucky payday borrower is indebted for 160 days a year and pays $529 in fees alone for $317 of credit.

These loans are predatory in nature. Lenders target low-wage earners, seniors and other vulnerable citizens. Because of their short-term due date and high fees, it is nearly impossible to repay a payday loan in time.

Instead, people find themselves still short of cash and forced to go back for another loan. We see this unending cycle persist despite other legal attempts at restrictions. The database provides strong evidence of this.

Common sense tells us that paying interest hand over fist is bad for families and bad for the economy when families can't pay for things they really need: a new pair of boots, gas so that they can drive to work, medication, etc.

Our religious heritage tells us that laying a debt trap is blatantly immoral. The Bible has spoken clearly about lending, warning against interest charged to the poorest.

Throughout its history, the church has opposed usury and usurers who, in the words of Martin Luther, "oppress the poor and deprive them of their daily bread.

The CFPB and payday lending – Off the Kuff

Picking his first public fight with the banking industry, Washington’s top consumer cop, Richard Cordray, promised on Thursday that his examiners will scrutinize a handful of big banks that make high-cost loans. Inspection of major financial institutions will be part of a broader review of payday lenders, he said at a public hearing organized by the Consumer Financial Protection Bureau in Birmingham, Ala.

The move is significant in that Cordray made no distinction between established financial institutions, including Wells Fargo and U.S. Bank, and less-respectable storefront and online payday lenders with names like EZ Money and AmeriCash Advance, widely criticized for making high-cost, short-term loans to the most desperate borrowers.

Although he was careful not to strike a directly confrontational tone, by specifically mentioning banks’ high-cost loans in his first major speech as the new CFPB chief, Cordray suggested that his agency doesn’t buy the bank industry line that its loans are not traditional payday products because they are structured differently.

Cordray did not single out any bank. But the listing of specific names of such payday lending programs in an examination guide released at the hearing — such as Fifth Third Bank’s “early access advance” — is likely to chill the blood of bank executives, whose companies make big profits off payday loans.

“We recognize the need for emergency credit,” Cordray said in a transcript of his opening remarks, provided in advance. “At the same time, it is important that these products actually help consumers, rather than harm them.”

I have a copy of his remarks beneath the fold. I note this story for two reasons. One, of course, is because I believe this sort of scrutiny is long overdue. While there is certainly a need for short-term emergency credit, you don’t have to do a lot of research on this topic to see that an awful lot of payday lending is designed to take advantage of people who are not very sophisticated about finances, most of whom are poor. It’s a huge transfer of wealth away from those who have the least, which is why many religious leaders and organizations are involved in this fight, to their credit. Often, churches are left to clean up the mess that this causes for their members. Putting a stop to the worst practices and arming people with the information they need to make better choices will make a big difference.

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