Politics & Government

Group endorses 36-percent cap on payday loans

State Rep. Darryl T. Owens, D-Louisville
State Rep. Darryl T. Owens, D-Louisville Lexington Herald-Leader

FRANKFORT — Most of the payday lending industry's revenue in Kentucky comes from customers with at least five loans a year, who often pay more in interest than they originally borrowed, according to data released Monday by a consumer advocacy group.

The Kentucky Coalition for Responsible Lending held a news conference at the Capitol to endorse House Bill 182, which would cap payday loan interest rates at 36 percent. At present, the small, short-term loans cost $15 per $100 borrowed, which amounts to about 400 percent interest a year, critics say.

"It's immoral, it's sinful, and we in the Kentucky legislature need to do something," said Rep. Darryl Owens, D-Louisville, the sponsor of HB182.

Owens and his supporters shared numbers from a state database that tracks payday lending in Kentucky. Despite industry claims that payday loans are used mostly for occasional emergencies, they said, in the first nine months of 2010, customers on average engaged in 8.6 loan transactions and paid $439 in fees for every $310 borrowed. Only 2 percent of the industry's revenue came from one-time customers.

Mary Love, an Oldham County retiree, said she fell into "a debt trap" when she borrowed $200 from a payday lender to cover her rent. Love wrote the lender a $230 check, which it held until her next payday. But she was still short of cash on the due date, requiring more held checks, more debt and more interest, Love said.

"I was sinking farther and farther into debt," Love said. By the time credit counselors helped her break free, "I paid about $1,450 in fees on a loan of $400," she said.

Owens said he's been assured that his bill will get a hearing this month in the House Banking and Insurance Committee, although its success after that is uncertain.

Owens sponsored a similar bill last year that did not get a committee hearing. Campaign-finance records show the payday lending industry has given more than $100,000 in state political donations since 1997, largely to members of the legislature, and it retains several Frankfort lobbyists.

"There has been a significant amount of money spent by the payday lenders, and I don't know exactly how that's going to play out," Owens said.

One of the industry's lobbyists, Pat Crowley, attended Owens' news conference and later took issue with the legislation. Enacting a 36 percent interest cap will hurt the industry, Crowley said.

"There is a need for this product. We have over 180,000 customers, we have 2,000 employees, and we have space in 600 retail locations," said Crowley, who works for the Kentucky Deferred Deposit Association. "We think we are providing a service, and we think the numbers show it."

Supporters of Owens' bill should instead target the fees banks, credit unions and credit card providers charge for all sorts of services, including ATM transactions, check printing, maintaining account balances and money orders, Crowley said.

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