The Daily Independent (Ashland, KY)
Published: January 30, 2009 05:36 pm
Capping rates — 02/02/09
Kentucky should follow others in restricting payday lending
Responding to a request from Advance America, the nation’s largest payday lending chain, the New Hampshire bank commissioner ruled that the company’s annual interest rates of 365 percent on a small loan is unacceptable and “constitutes an unfair trade practice… and is therefore unlawful.”
Gee, do you think? An interest rate that far exceeds what most of the illegal loan sharks charged is excessive? What’s a fair interest rate for loans to people with poor credit histories? 300 percent? 200 percent? 50 percent?
The Obama administration thinks the top interest rates should be 36 percent. The president has endorsed a bill that would cap the rate charged for payday loans at 36 percent. However, bills that would do just that have failed to gain approval in Congress.
While Congress has refused to do anything to cap interest rates on payday loans, state legislatures have. Fifteen states and the District of Columbia have enforced annual interest rates in the range of 36 percent in order to stop predatory lenders from ensnaring borrowers in high-interest loan traps. In November, Ohio voters overwhelmingly rejected an industry attempt to overturn the 28 percent cap passed earlier in the year by the state legislature, and Arizona voters spurned an attempt to cancel the scheduled 2010 expiration of the law allowing payday lenders to charge triple-digit rates.
But bills to cap interest rates charged by payday leaders have not fared well during recent sessions of the Kentucky General Assembly. At the same time legislators in Columbus exhibited broad bipartisan support by approving one of the nation’s most stringent payday lending bills, a bill filed by State Rep. Johnny Bell, D-GLasgow, that would have put far less stringent control on payday lenders than Ohio approved, never gained the support of either house.
One has to look no further than neighboring Ohio to realize that laws putting restrictions on what payday lenders could charge in interest enjoy broad public support. We had hoped Ohio’s action would give Kentucky legislators the courage to restrict payday lenders. But as this is written, Bell has not even refiled the bill he supported a year ago.
We recognize that payday lenders are the only way some people can get money to pay for such things as utility bills and rent. Thus, they play a role in our society.
However, that role should not include interest rates that ensnare gullible consumers and enrich the owners of payday leading storefronts. Ohio’s law may be a little too stringent, but it is far better than what Kentucky is trying to do to restrict payday lenders: Nothing.