Payday loans - high-cost small loans averaging $350 that usually must be repaid in a single payment after two weeks - are designed to create a long-term debt trap. Whether they receive the loans online, in store fronts or through banks, the vast majority of borrowers cannot both repay the loan and cover all their basic living expenses until their next payday. As a result, they typically take out multiple loans within a short time frame, paying repeated fees to do so. Payday loans create a debt treadmill that makes struggling families worse off than they were before they received a payday loan, and they are a huge problem in Kentucky.
In March of this year, the Consumer Financial Protection Bureau released a study which found that four out of five borrowers renew their payday loan within two weeks, because they need more money to pay their bills and make ends meet.
Kentucky is one of five states without meaningful regulation of payday lenders. So what has Sen. Mitch McConnell done to enact laws that help consumers avoid this revolving door of debt?
Back in 2001, when the Senate considered a bankruptcy overhaul bill, McConnell was the deciding vote to kill an amendment to bar creditors from collecting debt in bankruptcy if they failed to comply with the Truth in Lending Act of 1968.
And on that same piece of legislation, McConnell tried unsuccessfully to kill an amendment to allow borrowers to sue bankrupt lenders - or investors who acquired their assets - for unfair lending practices under the Truth in Lending Act of 1968, which requires creditors to notify borrowers of the terms of their loans. The provision was aimed at punishing companies like predatory lenders that use deceptive marketing practices to lure customers into high-interest loans.
It is votes like this that earned McConnell a 0 percent rating from the Consumer Federation of America in 2000.