Ky. law sets limits on payday lending

cycle of debt not allowed

December 19, 2011 

  • At issue: Dec, 5 commentary from the Kentucky Coalition for Responsible Lending, "Cap payday-loan interest rates at 36%"

The recent commentary proves that opponents of the payday lending industry are incapable of having a public policy debate based on facts and reality. Year after year, opponents are forced to mislead the public because the facts about current Kentucky law simply don't fit their false narrative.

Despite the commentary's statements to the contrary, current Kentucky law makes it illegal to charge interest for a payday loan. Payday loans are short term, single-payment loans. A one-time fee is charged for taking out the loan, and "rolling over" loans in Kentucky is illegal.

Kentucky law also restricts people from taking out more than two payday loans at any one time totaling no more than $500. When borrowers take out a loan, they are fully informed at that moment the cost of the transaction and when they are expected to repay the loan.

But what if they are late in repaying the loan? Kentucky law already makes it illegal for payday lenders to charge late fees. Additionally, the law prohibits payday lenders from criminally prosecuting borrowers for inability to pay back their loans.

In other words, the notion that people get wrapped up in a cycle of debt, constantly being chased by payday lenders is absolutely a myth in the state of Kentucky. Compare this reality to that of someone who overdraws a checking account; you will find that banks aren't as forgiving as payday lenders.

Kentucky has a new database to track payday loans because of legislation supported by payday lenders in 2009. The industry supported the database to give consumers and policy-makers absolute confidence that payday lenders are following the law in Kentucky.

The database has prevented some people from borrowing more than the law allows, which means it is working. The first month the database went into effect, over 40 percent of loan applications were denied, and issued loans dropped 24 percent over the first six months.

The database was the correct solution, and we should let it continue to work. Claims of a cycle of debt are anecdotal at best, which is not a good way to make broad public-policy changes.

The people who oppose payday lending are funded by organizations that wish to offer competing products. Further, they seem intent on running a campaign to put us out of business based on emotionally charged anecdotes that simply aren't reflective of the overall payday-lending industry.

They don't wish to protect consumers; they simply want to sell them something and realize that payday loans are in many cases a better option for their target audience.

Payday lenders are proud members of Kentucky's business community. We are proud to offer affordable financial services to our customers. And we are proud to employ thousands of people across the state. It is unfortunate that every year, Kentuckians are subjected to absolutely false information about our industry.

Tres Watson is Kentucky spokesman for Community Financial Services Association.

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