Payday Rate Cap – Editorial

9 12 2009

Published in Courier-Journal, December 9, 2009

Payday rate cap

The Coalition for Responsible Lending is looking for someone in Frankfort willing to sponsor a bill to set the same 36 percent annual interest rate cap for civilian payday borrowers that Congress adopted in 2007 for payday loans to military personnel.

A similar proposal last session failed. The payday loan lobby in Frankfort is fierce — so fierce, that instead of a cap, a law was passed to create a data base that lenders presumably can access to identify borrowers for whom additional loans would cause them to exceed the legal limit of no more than two such loans at a time, each with a term of two weeks and totaling no more than $500. Yet, as one woman told The Courier-Journal , she was allowed to juggle as many as six payday loans at once. “As long as I’m paying them, they don’t care what I’m doing,” she said.

Currently, payday lenders in Kentucky can charge up to $15 for every $100 borrowed — $75 for the maximum $500 two-week loan — which annualized adds up to an allowable interest rate of more than 400 percent.

Payday lenders like it that way, and so the battle lines have already been drawn, as evidenced by an industry spokesman who said, “A lot of these so-called consumer groups, they don’t want consumer protection. They want the service to disappear.”

Pay lenders do provide a service to people hard up for cash in the short term, and lenders willing to extend credit to risky borrowers ought to be able to realize a fair profit for the risk.

That said, a 36 percent interest rate cap, although high, is probably fair. But it’s also as high as it should go. That rate, after all, doesn’t seem to have bankrupted the payday lenders who specialize in lending to Kentucky’s military personnel.



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