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MACED thanks Gov. Beshear for his support of payday lending interest rate cap


March 27, 2009


Governor Steve Beshear

700 Capitol Avenue, Suite 100

Frankfort, KY 40601


Dear Governor Beshear:


I am writing to thank you for your leadership in announcing support for a 36 percent interest rate cap on payday lenders in Kentucky. An interest rate cap is critical to addressing the widespread problem of predatory payday lending and creating fair financial services in Kentucky.

In 2007 MACED launched the Common Cents Financial Initiative to pilot an employer-based alternative to payday loans. Through the initiative, employees of participating businesses can take out loans of up to $500 offered at reasonable interest rates and for much longer terms than payday loans. In exchange for the loan, the program requires borrowers to put aside money each month in a new savings account.


In its pilot phase, the program has already helped consumers save an estimated $153,000 in fees over what payday lenders would charge. And by linking consumers to savings and also offering financial education, the program is testing models that can help Kentuckians reduce their need for emergency cash and build assets through stronger relationships with traditional financial institutions.


Such viable alternatives are possible as part of a system of fair financial services. However, the predatory practice of charging interest rates and fees of around 400 percent in order to trap borrowers in debt is neither acceptable nor desirable. Payday loan shops in Kentucky extract an estimated $145 million annually in fees from their mostly low- and moderate-income customer base. MACED has identified more than 170 active payday loan outlets in our service area of Appalachian Kentucky.


The Center for Responsible Lending and other experts in this field have identified an interest rate cap of 36 percent as necessary to address this serious problem.


MACED is happy to offer assistance and support in enacting an interest rate cap in Kentucky. Please find attached a learning brief about our alternative to payday lending program. Thank you again for your leadership on this issue.




Justin Maxson