More restrictions are needed on payday lenders

Bowling Green Daily News – March 18, 2009

Payday lenders hurt a lot of people who are trying to get out of a financial emergency and it is a shame state legislators chose not to put tougher restrictions on these lenders.

House Bill 444 passed the Senate on Thursday after passing in the House earlier in the session.

That bill establishes a state database to track the loans – making sure borrowers have no more than two such loans, and that they total no more than $500. In addition, an amendment inserted in committee establishes a 10-year moratorium, during which time new payday lending businesses are prevented from opening in the state.

The bill, which now goes to Gov. Steve Beshear, doesn’t go far enough in clamping down on these businesses. Preventing new payday businesses from opening in the state simply allows those already here to have less competition and gain a larger foothold.

Some people may disagree with this assessment. That is their prerogative, but these places offer short-term solutions to people with deep financial problems who often end up in a worse financial positions than before they went to a lender.

Look at 31-year-old Richardsville resident Jamie Lewis, a working mother and college student at Western Kentucky University. She went to a payday lender in Bowling Green and got about $400 in quick cash, and while she was able to pay that one off, she got behind on a second payday loan of about $450 she took out soon afterward.

She then took out another loan to get out from the previous one, fell further behind and was eventually taken to court by her lender. As a result, Lewis’ wages were garnished to repay the loans.

Lewis and countless others can become deeper in debt after borrowing from a payday lender. Fees can eventually total considerably more than the original loan.

Also worth mentioning, the fees borrowers must repay can become the equivalent of an interest rate ranging from 300 percent to more than 1,000 percent.

Kentucky Youth Advocates estimates that Kentuckians pay an estimated $131 million annually in fees on payday loans.

This is an outrage and is seriously hurting Kentucky families.

We concede that some people may have no other option than to go to a payday lender, but we come down on the side of consumer advocates who charge that payday lenders exploit those making low incomes and trap them in a cycle of debt.

Another bill that would have provided stronger regulation failed in the House Banking and Insurance Committee.

This bill would have required lenders to be licensed through the Kentucky Department of Financial Institutions and imposed a 36 percent interest cap on all payday loans. It would have limited borrowers to one outstanding loan at a time of no more than $500; prohibited renewal of the loan for a fee; limited the term of a short-term loan to 30 days; and prohibited lenders from making a loan to a borrower who had taken out another in the previous 90 days.

It’s too bad this bill failed; it would have addressed a serious problem in a more meaningful way.

The bill pending before Beshear falls way short of that.

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