By RONNIE ELLIS
FRANKFORT — A “real-time” database of payday lending transactions will be up and running as of May 1, according to Charles Vice, Commissioner of the Department of Financial Institutions.
And, according to the CEO of the company, which will operate that database, Kentucky is likely to see a reduction in the number of payday lenders after that. Thomas Reinheimer of Veritec Solutions said his company operates such databases in nine other states and in each, about “18 to 20 percent” of licensed payday lenders closed down once the database was in operation.
The database is required under a law passed last year which was sponsored by Rep. Johnny Bell, D-Glasgow. It makes illegal internet payday loans and requires all payday loan transactions to be entered into the database, including customer name, address, phone number, amount of the loan and the number of loans which the customer has outstanding.
Kentucky law limits such loans to two and a maximum of $500 at any one time for any one customer. But consumer groups which seek a cap on the interest such lenders can charge contend the average customer often has as many as nine loans in the course of a year. Bell sought an interest cap two sessions ago, but critics questioned data cited by those supporting the cap. So last session, Bell agreed to sponsor House Bill 444 – requiring the database.
Vice, the DFI commissioner, said the new database will provide that information. If a customer attempts to secure a third loan – in violation of the current law – the database will tell the lender the customer is ineligible for another loan until the previous ones are paid off. It will also track the number of lenders, customers, loan amounts and volume as well as fees and interest.
Reinheimer of Veritec said similar databases in the other nine states “have effectively enforced the policy requirements” or laws in those other states.
Vice said the database will also allow his agency to perform “for cause” audits of lending firms when problems show up in the database. Currently, every payday lender in the state is audited annually by DFI.
Payday lender critics contend such businesses prey on poor people, often rolling up fees and interest on repeat loans which end up totaling as much as 400 percent annually. Representatives of the industry contend they are allowed to charge only $15 per $100 loaned, and Vice confirmed that Wednesday before the House Banking and Insurance Committee.
That doesn’t account for repeat borrowers – but Vice said that can’t be effectively tracked without the database.
Rep. Darryl Owens, D-Louisville, has filed a bill in the current session to cap interest rates at 36 percent, a level used in some other states and by the federal government for military personnel. The committee chair, Rep. Jeff Greer, D-Brandenburg, hasn’t said if he’ll hear testimony on the bill – but he said he wants to see the results of the database before considering any further changes to the law.
Rep. Tim Firkins, D-Louisville, praised the database bill but he said he believes the data collected “is going to make the case for capping rates even stronger.”
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.
