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By Jere Downs
Finding herself short $200 on her rent after being laid off from her job at Presbyterian headquarters, Mary Love took out a payday loan.
The following payday, her bank account was charged $200, plus a $30 fee by the Outer Loop lender.
Love said that easy access to cash ultimately cost her $1,420 in fees — with what amounted to an annual interest rate of 391 percent — as she paid down credit card debt and expenses between 2003 and 2005.
"I couldn't see any way out," said Love, now 69, a retired minister and an activist against payday lenders. Because of the rolling fees, "I felt defeated. I was under enough stress without adding the stress of having to go and beg from my family."
Her experience may be declining among Kentucky residents, however, as the number of payday lenders drops amid increased state and federal scrutiny.
As of August, the Kentucky Department of Financial Institutions had issued 68 fines to payday lenders, compared to 70 for all of last year. There were 50 in 2012 and 40 in 2011.
Meanwhile, the number of Kentucky payday lenders has fallen in the last three years to 539 stores from 750.
"Not that long ago, payday lending was like the wild west. It was an unpoliced frontier," said Terry Brooks, executive director of Kentucky Youth Advocates, a nonprofit that has helped lobby for lower interest rates and other payday lending reform.
"The thing that we continue to be concerned with is that we know that a predatory climate in a high poverty state is a recipe for continued problems," he said.
Amy Cantu, communications director of the Community Financial Services Association of America, a trade group based in Alexandria, Va., said payday loans provide crucial credit to consumers struggling through the recession and the resulting tightened lending at banks.
"The 2008 recession ... changed the credit marketplace," Cantu said. "Consumers lost the ability to use traditional forms of credit as home equity loans and credit cards were restricted."
A payday loan usually lasts up to two weeks, On payday, full payment is automatically withdrawn from a customer's bank account, plus a fee.
In Kentucky, a payday lender can charge no more than $15 per $100 in credit, and state law restricts borrowers to no more than two loans at a time, or a cumulative $500 cap.
Those limits have been in place for a decade but were largely unenforceable until 2010, said Charles Vice, commissioner of the state banking agency. That's because customers were relied upon to truthfully sign an affadavit attesting that they had no more than than the legal limit of payday debt, he said.
But in 2010, state lawmakers passed a measure creating a database, "Veritec," to flag suspicious transactions. It records each loan via a Social Security number, driver's license number, address and other personal information.
"It's been a tremendous tool for us," Vice said. "That is why our fines are increasing."
He said the most common violation has been the falsification of personal information to extend credit beyond a borrower's limit. An outlet of ACE Cash Express at 2113 W. Broadway was fined $1,000 in April for such a violation, state records show.
A clerk at the West Broadway store referred all inquiries to ACE corporate headquarters. A phone call and email to ACE spokeswoman Victoria Daugherty was not returned.
Kentucky's new law in 2010 also placed a 10-year moratorium on granting licenses for the lenders. Thus, as payday store licenses expire or are surrendered to the state, no new storefronts have opened, Vice said, contributing to the dwindling number of payday lenders.
Payday lenders also have been subject to federal enforcement because of the new Consumer Financial Protection Bureau, which began regulating the industry in 2011.
The bureau, created by Congress in the wake of the 2008 banking crisis, is the first federal agency to specifically regulate the payday lending industry by cataloging and investigating consumer complaints.
A bureau report in May found payday lenders have been found to err in three main areas: First, lenders too often deceive consumers about the actions they will take to collect a debt, illegally harrass them, and hire third-party collectors who also break the law, including making false threats of criminal prosecution.
The bureau's first federal enforcement action, in November, resulted in a $14 million settlement for customers of Cash America International Inc., which has nine locations in Louisville.
The bureau also fined Cash America $5 million for wrongly seeking to collect on delinquent accounts by improperly "robo-signing" court documents.
In July, the bureau ordered ACE Cash Express— which operates 5 locations in the Louisville area — to pay $5 million in fines plus an additional $5 million in refunds to consumers nationwide.
All customers who took out ACE payday loans from March 7, 2011, through Sept. 12, 2012, are eligible for a full refund of all payments, according to the bureau's order.
"ACE used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt," bureau director Richard Cordray said last month. "We believe that ACE's aggressive tactics were part of a culture of coercion aimed at pressuring payday borrowers into debt traps."
ACE, headquartered in Irvine, Texas, responded in July to the bureau's fine by asserting it has reformed debt collection since 2011, including increased monitoring of millions of calls annually to delinquent borrowers. It also stepped up training to comply with fair debt-collection practices, the statement said.
"We settled this matter in order to focus on serving our customers and providing the products and services they count on," ACE CEO Jay B. Shipowitz said in the statement.
Cycle of debt
Cantu said that while the federal government proceeds with regulating payday lenders, "more research and studies about short-term credit products are needed. It is important to develop the facts ... and to avoid presumptions based on anecdotes."
In 2012, Kentucky payday borrowers took out an average of 10 loans, with indebtedness lasting an average 202 days, according to a report by the Kentucky Coalition for Responsible Lending. As a result, the average Kentucky borrower paid $563 in fees that year.
And most payday borrowers, or two-thirds, said they used the money to cover recurring expenses like rent, food, energy bills, or credit card payments, according to the Pew Charitable Trusts.
David Dutschke, director of community engagement at Catholic Charities of Louisville, and a member of CLOUT, or Citizens of Louisville Organized & United Together, said payday lending's business model "is to keep people locked in and keep shaking them down."
Fighting them "is not an easy battle."
Love said her battle began with the cash advance to cover her rent.
Then she took a second payday loan — $400 plus $60 in fees — to pay down some credit-card debt. But the $60 fee set her behind on money to pay for food and utilities. As a result, she took out a third $400 note to pay off the first, and incurred another $60 fee.
She said she eventually found relief through the help of a nonprofit credit counseling service, where she learned to better manage her money. Since then, she said she speaks out about the hazards of easy cash from payday lenders to help others.
"I want people to know that once you are caught up in this, it is just really difficult to get out," she said. "I've given up feeling bad about it."
Editor’s note: Reprinted with permission through the Kentucky Press News Service.
If you were an ACE Cash Express customer from March 7, 2011, through Sept. 12, 2012, you may be eligible for a full refund to all payments, interest and fees. Information is available at (855) 411-CFPB (2372) or at http://www.consumerfinance.gov
What's a payday loan?
A payday loan is a short-term loan, usually lasting up to two weeks. That is when full payment is automatically withdrawn from a customer's bank account, plus a fee. In Kentucky, a payday lender can charge no more than $15 per $100 in credit for a loan. State law restricts borrowers to no more than two loans at a time, or a cumulative $500 cap.