New research finds that Kentucky law puts those who take out installment loans at risk. The Pew Charitable Trust is calling for more protection and transparency for borrowers. This type of lending hasn’t been researched as much as payday loans until now.
Payday lenders in Kentucky can charge interest rates averaging 469 percent and while installment loans cost less, they have other risky features. The study shows origination fees and expensive credit insurance drives up the cost of installment loans.
Alex Horowitz is a senior officer of consumer finance work with the Pew Charitable Trust. He said Kentucky should move away from payday lending while improving regulations for installment loans. Horowitz used Ohio as an example of a state that has reduced the risks for subprime borrowers or people with a low credit score.
“Ohio recently changed their state law to reform payday lending and make it work like installment lending where borrowers repay in affordable installments. Kentucky hasn’t done that yet,” he said.
Horowitz said if payday lending is going to exist it needs safeguards. He said payday lenders have gotten special treatment in Kentucky and don’t have to follow state interest level limits. Horowitz said there isn’t a lot of research on installment lending, but roughly 10 million Americans use those loans annually. Pew found that two-thirds of all installment loans are refinances of existing loans.