Governor Beshear Calls for Cap on Payday Lending

16 12 2009

Gov. Beshear Calls for Rate Cap on Payday Lending

36 percent rate cap would match federal limit for military families

[Governor Steve Beshear released the following statement to the media on 12/15/2009]

FRANKFORT, Ky. (Dec. 15, 2009) – Gov. Steve Beshear today joined consumer advocates in calling for the General Assembly to limit the amount of interest payday lenders can charge customers to 36 percent. Currently those rates, on an annualized basis, can be more than 400 percent.

“Thousands of Kentuckians who have fallen on hard economic times are trying to find short-term means by which they can put food on the table for their families. In many cases they turn to lenders who, with no security needed, loan money with a very high expected rate of return,”

Governor Steve Beshear

 said Gov. Beshear. “A rate cap would be a strong protective measure that we can take on behalf of consumers.”

The 36 percent annual percentage rate (APR) cap is consistent with the limit the federal government implemented for military personnel and their families in October 2007. At least 15 states have followed suit and now prohibit high-cost payday lending by limiting the interest rate to a two-digit cap. Also, following the national trend away from payday lending, the Federal Deposit Insurance Corp. is now piloting a small-dollar loan program encouraging banks to offer affordable small loans as an alternative.

“The Governor is taking a direct and crucial step in supporting the financial well-being of Kentucky’s hard working families,” said Terry Brooks, executive director of Kentucky Youth Advocates. “In tough economic times, we have to be creative in fighting the high price of being poor in Kentucky. By tackling predatory lending practices through this payday loan interest cap, Governor Beshear will make a real difference for families from Prestonsburg to Paducah.”

A July 2009 Center for Responsible Lending report found that three-fourths of the loan volume of the payday industry is generated by borrowers who must re-borrow before their next pay period. The loans cannot be “rolled over,” so each time a new loan is made the full fee is applied. Consumer advocates say that this causes a cycle of debt that consumers find difficult to escape.

“The Kentucky Coalition for Responsible Lending (KCRL) applauds the Governor’s efforts to cap interest on payday loans at 36 percent,” said Anne Marie Regan, an attorney with the Kentucky Equal Justice Center and a member of KCRL, a statewide coalition of 64 member organizations that came together last year to seek reform of Kentucky’s payday lending law. “When Kentucky families are struggling to make ends meet, the legislature should ensure that all lending rates, including those on payday loans, are fair and reasonable.” More information on payday loans and the KCRL is online https://kyresponsiblelending.wordpress.com/

Today there are 743 payday lenders – also known as check cashers or deferred deposit companies – operating in Kentucky. A 10-year moratorium instituted in 2009 prevents new payday lenders from opening in Kentucky. This provision was included in HB 444 sponsored by Rep. Johnnie Bell and supported and signed into law by Gov. Beshear.

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