A few Kentucky lawmakers want payday loan stores to face much heavier penalties when they violate consumer-protection law.
Senate Bill 169 and House Bill 321 would boost the range of fines available to the Kentucky Department of Financial Institutions from the current $1,000 to $5,000 for each payday lending violation to between $5,000 and $25,000.
State Sen. Alice Forgy Kerr, R-Lexington, said she was upset last July to read in the Herald-Leader that Kentucky regulators allowed the five largest payday loan chains to accumulate hundreds of violations and pay barely more than the $1,000 minimum fine each time, and regulators never revoked a store license.
Nobody seems to be stopping payday loan stores from bankrupting their borrowers with debt beyond the legal limits, Kerr said.
Under state law, the lenders are supposed to use a state database to be certain that no borrower has more than two loans or $500 out at any given time. But lenders sometimes let customers take out more than that, or they roll over unpaid loans, fattening the original debt with additional fees that can exceed a 400 percent annual interest rate, according to state records.
“I just think we need to be able to buckle down on these people,” Kerr said. “This is an outrageous industry anyway, and anything that we can do to make sure that they’re abiding by the letter of the law, we need to do it.”
“Honestly, as much money as they’re making from some of our society’s poorest people, even $25,000 might not be a lot of money to them,” Kerr said.
Rod Pederson, a spokesman for the Kentucky Deferred Deposit Association in Lexington, said he hasn’t had a chance to review the bills, but he thinks the current penalties are adequate for his industry.
“I don’t really see how this is necessary,” Pederson said.
The Kentucky Center for Economic Policy, a liberal-leaning advocacy group in Berea, is backing the measures.
“We hope legislators will support these initiatives to help crack down on predatory lenders who break the rules,” said Dustin Pugel, a research and policy associate at the center. “Fines for breaking the law shouldn’t be treated as just a cost of doing business, so we’re hopeful these stronger penalties will be a good step toward keeping Kentucky families safe from exploitation.”
Last year, the Herald-Leader analyzed enforcement actions settled since 2010 by the state’s five largest payday loan chains: Cash Express, Advance America (doing business as Cash Advance), Check Into Cash, Southern Specialty Finance (Check ’n Go) and CMM of Kentucky (Cash Tyme). It found that the Department of Financial Institutions seldom, if ever, imposed heavy penalties, even when the same stores were repeatedly cited for the same violations.
Overall, to resolve cases involving 291 borrowers, the five largest chains paid an average of $1,380 in fines, for a total of $401,594. They never lost a store license. The chains represented 60 percent of the state’s 517 payday loan stores.
Payday loan companies and their executives have spent hundreds of thousands of dollars in recent years on campaign donations to Kentucky politicians and on lobbying the General Assembly.
In addition to their bills proposing heavier penalties, Kerr and Owens have filed matching bills that would cap at 36 percent the interest rate that payday lenders could charge. Earlier versions of this bill have languished in past legislative sessions for lack of action by committees, Kerr said.
“Hope springs eternal,” Kerr said. “I hope the 36 percent cap finally passes this year. But if not, then I hope we at least get the enhanced penalties.”