House Speaker Greg Stumbo, who yesterday shepherded a minimum wage increase for Kentuckians through a House committee, should shepherd proposals for a new predatory loan product into the garbage can.
Disappointingly, Stumbo instead posted House Bill 520 to be heard Wednesday morning by the House Business and Insurance Committee.
HB 520, which would enable the payday-loan industry to evade new federal protections for consumers, would be a disservice to many of the Kentuckians Stumbo is trying to help with a wage increase.
Lenders would be allowed to charge unlimited fees on open-ended loans of up to $4,000. Tennessee became one of the first states to authorize these so-called “flexible credit loans” in 2014.
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Based on fees charged in Tennessee, someone who had borrowed $500 would have paid $1,070 in interest and fees after 12 months and still owe $270, according to the Center for Responsible Lending.
No wonder a Kentucky coalition of consumer and faith-based groups sees this legislation as an expansion of the payday loan “debt trap.”
Instead of helping the industry prey on Kentuckians, lawmakers should be requiring payday lenders to abide by the same 36 percent interest rate cap as other lenders, as 11 states already do and Senate Bill 101 proposes. And regulators should be encouraging banks to get back into the small-loan business.
On Tuesday, Stumbo modified his minimum-wage proposal, which originally would have moved the state from the current $7.25 an hour to $10.10 an hour by July 1, 2018, with smaller increases this August and in 2017. The Democratic House approved those increases last year and in 2014 only to have them die in the Republican Senate.
The amended House Bill 278 that cleared the House Appropriations and Revenue Committee on Tuesday would be confined to one year, raising the hourly minimum to $8.10.
Twenty-nine states and the District of Columbia have enacted a higher minimum wage than Kentucky, which is long overdue for a raise.