State database gives first glimpse of payday loan trends; Industry says new cap unnecessary

01/19/2011 07:20 PM

Borrowers at payday lending stores took out an average of $310 and paid around $50 in fees on those advances, according to the first round of statistics kept by the state.

That works out to be about 16% in fees and interest on the average loan taken out.

The figures kept by the state’s Department of Financial Institutions offer a first look at concrete numbers regarding the controversial industry. cn|2 Politics obtained the figures Wednesday afternoon through an open records request filed last week with the Finance and Administration Cabinet.

The General Assembly approved the database in 2009 along with new restrictions so that a person can’t take have more than two loans of up to $500 total outstanding at a time.

John Rabenold, president of the Kentucky Deferred Deposit Association and vice president of governmental affairs at Cincinnati-based Check ‘n’ Go, said on Pure Politics that those changes from two years ago are enough. He said proposed legislation in this session would all but kill the industry and eliminate jobs with them.

Rep. Darryl Owens, D-Louisville, has proposed legislation that would impose the new 36% APR cap. He discussed his reasons for pushing the bill on Pure Politics last week.

Both Rabenold and Owens — who appeared along with Scott Wegenast of the AARP — quoted numbers during their interviews that appeared to be on opposite sides of the scale.

Rabenold claimed that payday lending establishments would collect mere pocket change on each loan if Owens’ legislation was approved. And Owens and Wegenast said payday lenders can hit up unsuspecting borrowers for more than 400% in interest. The numbers from the database indicate that the true effects of the industry are somewhere in between.

Owens and Wegenast, for instance, said the average number of transactions a person took out last year was 8.6. A more accurate account of how common multiple loans are per customer would be to take the mean of customer usage. That figure would fall between four and five loans per customer, according to the database figures collected from April 30, 2010, through September 30, 2010.

Other statistics from the state’s database include:

  • Borrowers go an average of nearly 21 days between transactions.
  • The average loan amount taken out between January 2010 and September 2010 was about $310.
  • The average service fees on the loans was about $50
  • 182,159 different people took out loans from payday lending establishments between Jan. 1, 2010 and Sept. 30, 2010
  • Kentucky had between 8,973 and 11,692 unique borrowers each of those months
  • Jefferson County had the most transactions with 248,225, followed by Fayette, Warren and Kenton counties.

Rabenold, from the payday lending industry, said his company no longer operates any facilities in the 17 states that have imposed such caps.

He said an annual percentage rate of 36% on a $500 loan (which would work out to be about $180 in interest rate charges for the year) would drastically cut into what the payday lenders earn to cover overhead. He said $1 per loan already goes to pay for a state database that collects information about the use of payday lending.

Here is the interview with Rabenold, which was taped before the state provided the database figures in response to the open records request:

Rabenold is a former aide in the Ohio legislature, who was hired at Check ‘N’ Go in 1999. He ran unsuccessfully as a Republican candidate in 2008 for Ohio’s 35th state House District, finishing second out of three candidates in the GOP primary. He also is a member of a tea party group in Hamilton County, Ohio.

- Ryan Alessi


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