Payday lending bill doesn’t do enough, some say

By RONNIE ELLIS

CNHI News Service

FRANKFORT February 25, 2009 06:59 pm

— A bill sponsored by Rep. Johnny Bell, D-Glasgow, which would require pay day lenders to enter each transaction into a statewide data base passed out of the Banking and Insurance Committee on Wednesday.
Bell has been pushing regulation of the “check cashing industry” for the last two sessions, originally proposing a cap on the interest rates charged. But he could never get the bill passed in the face of stiff opposition from the industry. So, this year, the bill would require pay day lenders to enter transactions into a data base which would begin operation on July 1, 2010 and charge the institutions $1 per transaction to pay for the data base.

But some of Bell’s previous supporters aren’t happy. A coalition of groups including AARP, Kentucky Youth Advocates, the Catholic Conference of Kentucky and others, called the Kentucky Coalition for Responsible Lending say the bill might do more harm than good. And they weren’t happy Wednesday they didn’t get a chance to speak on the bill before the committee.
“There’s no fairness in the Kentucky legislature,” said Cathy Allgood-Murphy of AARP. “They knew we wanted to testify and they deliberately did not let us.”
Bell was absent due to the death of his grandmother and committee chairman Jeff Greer, D-Brandenburg, explained the bill. He said afterward it was an “over sight” that he didn’t call opponents. Greer is the committee’s new chairman and was conducting only his third meeting of the committee.
Terry Brooks of Kentucky Youth Advocates said opponents want a cap on interest rates, something Bell has tried to pass in his previous bills. The federal government now caps such pay day loans at 37 percent for military personnel.

“Our position is that the military cap is working,” Brooks said, adding opponents fear this might be “the one bite of the apple” and lawmakers might not be willing to look at interest rates in the future after passing Bell’s bill. Some calculations indicate some pay day lenders charge as much as 391 percent on loans or “deferred deposits.” Such loans are made in anticipation of upcoming customer paychecks and customers are often trapped in a cycle of signing over their paychecks to pay for smaller loans taken out earlier to get them to payday.
Greer said the version passed out of committee Wednesday is a start, not an end.
“It does get us started so we can better regulate this industry and hopefully help some of our citizens from making some bad financial decisions,” Greer said. Many who have voted against the bill in the past have said such loans are needed by some segments of the credit market because they can’t get loans from banks. Even proponents of interest caps concede there is a place for the industry.

Rep. Joni Jenkins, D-Louisville, Monday filed a competing bill which would cap interest rates at 37 percent. It is similar to bills Bell sponsored in the previous two legislative sessions. She said the bill is “the gold standard” and matches the federal cap on loans to military personnel.
Greer said he has not read Jenkins’ bill before he decides to call it for a hearing.
“This late in a session, it would be difficult to pass two bills on pay day lending,” Greer said. “This bill Johnny (Bell) passed is a move in the right direction to regulate the industry. I think it’s a bill that can pass in the Senate.”

Greer said lawmakers can – and he expects Bell will – return to the issue in future sessions.
“It passed out of the House last year and it was a better bill than what we have right now,” said KYA Deputy Director Tara Grieshop-Goodwin.
The House last year passed a stronger version of Bell’s bill – which included the data base, restricted the number of loans to one customer in a proscribed time frame and a cap on interest rates. It was strongly opposed by the industry and died in the Senate.

Brooks, of KYA, said the industry position on this year’s bill is “they neither oppose nor support the bill. I think their silence is a very loud message.”
Brooks said other states which have passed data bases have seen pay day lenders find ways to avoid making data base entries. And Allgood Murphy said the $1 fee will be passed onto their customers who can’t afford the interest on the loans now. And such companies often prey on the elderly, she said.
“These people are predators and they’re taking money from seniors right and left,” she said.
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com.

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