FRANKFORT — Despite his previous ties to the payday-loan industry, Gov. Steve Beshear said Tuesday that he would back a proposal to cap interest rates for short-term lending at 36 percent.
Beshear worked as a lobbyist for the industry in 1998 and held a fund-raiser at a payday-loan executive's home in October. The Community Financial Services Association, a trade group that represents payday lenders, opposes any cap, saying it would drive many payday lenders out of business, encourage more personal bankruptcies and deprive the neediest families of emergency credit.
Beshear said that too often, families turn to these lenders in tough times to pay for basics. "A rate cap would be a strong protective measure that we can take on behalf of consumers," he said in a written statement.
No state lawmaker has filed a bill proposing the cap. Advocates who are backing the idea say they want more support from Republicans and Democrats before the bill is filed.
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At least 15 states have enacted some type of cap on payday lending. Sometimes rates on small, short-term loans can be as high as 400 percent in Kentucky, some research has shown.
A July report by the Center for Responsible Lending showed that many people borrow from one lender to pay off another. Consumer advocates say this often causes a cycle of debt that traps consumers.
Tres Watson, a spokesman for the payday-lending group, said many of the advocacy groups that are pushing the cap have non-profit, short-term loan businesses that directly compete with for-profit lenders.
"We hope the governor will look past the falsehoods peddled by our opponents and reconsider his position," Watson said. "Other states that have done away with payday lending have seen bankruptcy and bank overdraft rates skyrocket, and it would be disastrous if Kentucky were to follow the same route."
Terry Brooks, executive director of Kentucky Youth Advocates, a member of the Kentucky Council for Responsible Lending, said the coalition is working to generate support in both chambers of the legislature before it finds a lawmaker to sponsor the bill.
Beshear, who plans to run for re-election in 2011, held a re-election fund-raiser in October at the Tennessee home of a payday-lending executive who does business in Kentucky. Last year, the legislature instituted a 10-year moratorium on new payday lenders.