By RONNIE ELLIS
FRANKFORT — The fight over payday lenders just won’t go away, but a bill to cap interest rates may still disappear in committee.
House Bill 381, sponsored by Rep. Darryl Owens, D-Louisville, would cap annual interest on payday lender transactions at 36 percent, a level imposed by the federal government on lenders to military personnel and a level imposed by some other states.
But Tres Watson, a spokesman for payday lenders, said they can’t make a profit at those levels. Instead, said Watson and other representatives of the industry, Kentucky should allow time for implementation of a data base to track the number and nature of payday loans in the state.
Last year’s General Assembly passed House Bill 444, sponsored by Rep. Johnny Bell, D-Glasgow, which limits the number of loans and the amounts to two totaling $500. Lenders must enter each loan in a data base which the state can follow. However, that data base still hasn’t been implemented – a year after passage. The deadline for implementation is this July.
Owens at a rally Thursday in the capitol to drum up support for his bill that the data base won’t change the amount of interest being charged, saying proponents of last year’s bill are “not going to confuse us with a data base. If you get a loan, you’re still going to pay that 400 percent” interest rate.
According to Melissa Fry Konty, Research and Policy Associate for Mountain Association for Community Economic Development which is based in Berea, there are more payday lender locations (782) than there are McDonald’s restaurants (250).
A study conducted by MACED indicates people living in Kentucky took out 4 million such loans in 2008 on which they paid $158 million in fees and interest. And despite the law that borrowers can’t have more than two loans, the study says nine out of 10 payday lender customers are repeat borrowers, often taking out subsequent loans simply to pay back earlier ones.
The study also tracks payday lenders by county. For instance, Boyd County has 20 such lenders, according to the report – “The Debt Trap in the Commonwealth.” In 2008, those 20 lenders loaned $25.5 million, charging $4.5 million in fees and interest. Laurel County had 12 lenders who loaned out $15.3 million and charged $2.7 million in fees and interest.
The report labels as “predatory fees” those which are charged on fifth and subsequent loans to the same customers. It estimates customers in Madison County paid $2.8 million in “predatory fees” on $17.8 million in loans from 14 lenders.
For the entire state, the study estimates at least 782 lenders which loaned out $997 million in 2008. And lenders often concentrate locations – and business – in poor areas of urban centers and in poverty stricken rural areas.
Patrick Crowley, spokesman for the Kentucky Deferred Deposit Association, contends a study by two Xavier University professors show payday lenders provide a service that is in “high demand.”
“For many consumers, going to a deferred deposit licensee to obtain a short-term credit loan is what they consider to be their best option, and at times, their only option,” said one of the professors, Hyland Pawlukiewicz in the study.
Owens’ bill is in the House Banking and Insurance Committee where committee chairman Jeff Greer, D-Brandenburg, has said he hasn’t decided if it’ll come to a vote. He said he prefers to give the previously approved data base time to produce the data on which to determine what – if any – regulation is needed.
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.
