Editorial – Gov. Beshear should stick to interest cap pledge

6 10 2009
  
Beshear should stick to interest cap pledge

Editorial from the Owensboro Messenger-Inquirer

Published: Wednesday, September 30, 2009
Gov. Steve Beshear isn’t delaying his efforts at securing a second term in 2011.

Since announcing his running mate in July, Beshear has begun raising funds for his run for re-election. Those efforts included a fundraiser last week at the Tennessee home of the head of a national payday lending company.

Beshear’s relationship with the payday lending industry stretches back for years, but that familiarity and his desire for a second term shouldn’t stand in the way of further efforts to restrict payday lending in Kentucky.

Kentucky isn’t the first or the only state to look at addressing the exorbitant costs and predatory practices of many in the payday lending industry.

These short-term loans, which typically must be repaid within two weeks, are marketed as a bridge to payday, but instead can drag consumers into a cycle of debt. Loans are capped at $500, and the interest rate when annualized can be as high as 390 percent.

The payday lending industry markets the loans as a short-term solution to minor financial challenges, but instead the loans are often “flipped.” This practice has consumers taking out new payday loans to repay old, and they can quickly find themselves spiraling into deeper debt.

Beshear, as a lawyer in private practice, was a lobbyist for the payday lending industry in the 1990s. That connection is likely to raise some eyebrows given the fundraiser last week at the home of Garry McNabb, the chief executive officer of Cash Express, a payday lending outfit that has more than 100 outlets in Kentucky.

McNabb and the Beshear administration both downplayed the idea that the fundraiser was an attempt to gain access to the governor’s office.

“I can assure you there has not been the first hint that the fundraiser being tied to any kind of business,” McNabb told the Louisville Courier-Journal.

Chad Aull, the political director for the Beshear re-election campaign, also dismissed any impropriety, and said Beshear supports capping annualized interest rates for payday loans at 36 percent.

That cap is a goal of consumer advocates including the Kentucky Coalition for Responsible Lending, but one that was unrealized in legislative changes made this year. House Bill 444, a stripped down version of tighter restrictions offered in 2008, was passed and created a statewide database to help ensure lenders and consumers were abiding by limits on multiple loans.

With House Bill 444’s passage, Beshear said he would continue to work with the legislature to impose the 36 percent cap, and hopefully this fundraiser isn’t an indication he has other intentions. His actions once a legislative proposal is offered next year should bear out the assertions of McNabb and Aull.

“In the future, I believe we must take the next step of imposing caps on these lenders to afford consumers even stronger protections,” Beshear said in a statement about House Bill 444 in March.

More optimistically, Beshear’s connections to the payday lending industry could offer an advantage to Kentucky consumers. The governor should use his influence with his industry connections to ensure their acceptance of the cap rather than letting their influence sway him.

Copyright © 2009 – Messenger Inquirer

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16 12 2009
Blue Bluegrass » Blog Archive » Beshear Backs Payday Loan Restrictions

[…] During the 2008 and 2009 legislative sessions, Governor Steve Beshear pushed legislation to limit payday loan company excesses, including a cap on interest rate of 36 %. That, despite the fact that during the 1990s, when he was in a private law practice, Beshear lobbied for payday loan companies on legislation in Frankfort. So when this fall, a fundraiser for Behear was hosted by one payday lender company executive, speculation began that Behear might be about to back off his position on payday loan reform. […]

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