FRANKFORT — A Senate committee tacked a 10-year moratorium on new payday-lending stores onto a proposal Friday that would track their loans.
The moratorium was requested by the payday loan industry, said Sen. Damon Thayer, R-Georgetown and chairman of the Senate State and Local Government Committee.
Consumer advocates said House Bill 444 still doesn't do enough to stop widespread abuses. They want the legislature to limit the annual percentage rate on payday loans to 36 percent, the same percentage Congress put in place for military families.
Without the cap, the interest rates on such loans will stay at 390 percent or higher, said John Rosenberg, an issue specialist for AARP Kentucky.
Payday lenders use a post-dated check or electronic checking-account information as collateral for a short-term, high-interest loan.
To qualify, borrowers only need personal identification, a checking account and an income from a job or government benefits, such as Social Security or disability payments.
Tres Watson, a spokesman for the Community Financial Services Association of America, said the payday lending industry is pleased with the Senate committee vote and views it as "another step toward strengthening Kentucky's consumer protection laws.
"Payday critics continue to push for irrational caps that would drive us out of business and deprive Kentucky families of a necessary service, especially at a time when short-term credit is hard to obtain," Watson said in a statement. "Fortunately, a vast majority of Kentucky legislators have seen through their false accusations to do the right thing for the state and Kentucky families."
Watson said the companies make only a modest profit after accounting for operating costs, bad debts and other expenses.
HB 444, which now goes to the Senate for consideration, would create a state-run, online database to keep track of the high-interest, short-term loans. State law says consumers can have only two such loans totaling $500 at a time, but there has never been a way to track that information.
The bill also authorizes a $1 fee per transaction to pay for the database. Rosenberg said he expects the industry to pass that cost along to the consumer.
A similar measure passed the House last year but died in the Senate.