FRANKFORT — Despite concerns that it might not be constitutional, Gov. Steve Beshear signed into law Wednesday a bill to eliminate new competition for existing payday lenders and promised to work on capping the interest rates they can charge.
Consumer advocates who have pushed for more restrictions on payday lenders — which can charge upwards of 400 percent interest — praised Beshear for his position on capping payday-lending rates, saying it would help Kentuckians.
But a spokesman for payday-lending businesses disagreed.
Tres Watson, a spokesman for the Community Financial Services Association of America, called a cap "flawed logic"
A cap on payday advances, he said, "would drive lenders from Kentucky and deprive families of access to emergency credit, increasing bounced checks and bankruptcies."
Beshear said in a statement Wednesday that he will work with lawmakers in the 2010 legislative session to cap the annual interest rate payday lenders can charge at 36 percent — the amount Congress has implemented for military families.
"In the future, I believe we must take the next step of imposing caps on these lenders to afford consumers even stronger protections," he said.
Terry Brooks, executive director of the Kentucky Youth Advocates, which is part of a coalition of non-profit groups that have pushed for more restrictions on payday lenders, said Beshear's commitment to a 36 percent cap would help Kentucky families by mitigating the effect of current payday-lending rates on bankruptcy.
House Bill 444, sponsored by Rep. Johnny Bell, D-Glasgow, originally required a statewide database in 2010 to track payday loans.
But the Senate added a measure to put a 10-year moratorium on new payday-lending stores in the state and the House agreed.
Beshear, who was a lobbyist for the payday lending industry in 1998, said in a statement Wednesday that the database study should lead to a 25 to 30 percent reduction in the number of loans in the state.
But, he said, he is concerned about the 10-year moratorium.
"First, it is unclear whether this measure would provide any protection to consumers. Second, I question the constitutionality of this provision and believe it may be subject to a legal challenge," he said.
However, Beshear said he was now willing to "sacrifice the important protective measure put in place by a database over a legally dubious moratorium that may not pass legal muster in any event."
Kentuckians lose $131 million a year in fees to payday lenders, said John Rosenberg of Prestonsburg, an AARP volunteer and member of the Kentucky Coalition for Responsible Lending.
Rosenberg said he is "elated" that Beshear wants to cap the interest rates payday lenders charge.
He said the coalition also is hopeful that banks and credit unions will develop alternative products to make small loans more affordable and accessible, especially to low-income Kentuckians.
Beshear also signed several other bills into law on Wednesday, including:
■ House Bill 322, a measure to allow school districts to request waivers by May 1 from the state education commissioner for up to 10 disaster days missed due to last January's ice storm and last September's winds from Hurricane Ike.
Rep. Mike Cherry, D-Princeton, said he does not know how many public school districts will apply for the waiver but does not think it will be a large number.
■ HB 541, which allows soldiers who were injured while on active duty service during last winter's storm relief mission to stay on active duty during their rehabilitation.
"Without this change in law, under existing workers' compensation statutes, these soldiers would have only received two-thirds of their state active duty salary up to a maximum benefit of $694 a week," Beshear said.
■ HB 124, which allows students in elementary and secondary education to be granted excused absences from school for up to 10 days to visit a parent or legal guardian serving in the United States military.
