The 36% Solution

Courier Journal, Louisville, Kentucky

Editorial – March 11, 2009

Kentucky lawmakers seem mighty solicitous of payday lenders’ concerns. The Senate’s State and Local Government Committee has approved House Bill 444, which includes a 10-year moratorium on new payday loan outlets.

That’s just fine for the firms that already operate such businesses in Kentucky. It protects them from competition — which is odd, given that the state Senate is run by Republicans, who are supposed to believe in free market discipline.

But how about the customers who are forced by financial circumstance to subject themselves to the not-so-tender mercies of payday lenders? Where is their proection?

These unfortunate folks find themselves short of cash and faced with immediate payments, in order to keep the phone hooked up and the lights turned on, or maybe to keep personal checks from bouncing while a paycheck is pending.

In extremis, they resort to what they hope will be short-term borrowing.

Critics say what happens next, in all too many instances, is downright exploitation. Rates for such loans are very high, and some individuals become trapped in a cycle of continued borrowing, with costs escalating.

Consumer advocates promote the federal solution — a 36 percent limit on the annual percentage rate charged for short-term payday loans. That approach also has been adopted by 15 states.

House Bill 444 has no such cap. It just creates a database through which these kinds of loans can be tracked.

So it will be possible for regulators and consumers to keep tabs on all the financial exploitation, but nobody will be able to do anything about it — unless and until lawmakers decide to protect the public too.

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