FRANKFORT — A state House committee torpedoed a proposal Wednesday to curtail interest rates charged by payday lending companies.
By a close vote, the House Banking and Insurance Committee effectively killed a bill for this legislative session that would put a 36 percent cap on consumers' rate for payday loans, as the U.S. Congress has done for members of the military. Seventeen states and the District of Columbia have such a law.
At present, the small, short-term loans cost $15 per $100 borrowed, which amounts to about 400 percent interest a year, critics of payday lenders say.
"Poor folks just can't get a break," said the sponsor of House Bill 136, Rep. Darryl Owens, D-Louisville, after the measure died in the House committee on a vote of 10 in favor and 13 against. Four members cast "pass" votes.
Owens noted some payday lending officials have contributed heavily to state officeholders. "My gut says, 'Poor folks, zero. Special interests, one."
Owens said he considers the high interest rates charged by payday lenders "obscene" and would have to "give it some thought" whether he would bring the bill back in next year's legislative session.
This was the third year Owens has pushed the legislation and the first time it has received a committee hearing. It had the support of Gov. Steve Beshear and House Speaker Greg Stumbo.
Mary Love, an Oldham County retiree, told the committee she had to pay $1,450 in fees to a payday lender for a $400 loan.
About 13 percent of payday loans are made to senior citizens, said John Rosenberg, a payday lending specialist with the AARP.
Melissa Fry Conty, with the Kentucky Center for Economic Policy, said a state database set up in 2009 shows at least 83 percent of payday lending revenue was generated by borrowers with five or more transactions in 2010.
The Rev. Richard Sullivan, pastor of St. Michael's Church in Louisville, called payday lending "an immoral action on our people of Kentucky."
Testifying against the bill were John Rabenold, president of the Kentucky Deferred Deposit Association, and Tommy Moore, with the Community Financial Service Association of America.
Rabenold called Owens' bill "a job killer." He said the payday lending industry provides jobs to more than 2,000 Kentuckians and has a payroll of $35 million.
Moore said a 36 percent cap on payday loans would kill the industry.
Several committee members opposed to Owens' bill said payday lending provides a service to needy people and that more information is needed from the state database.
"What is the alternative for people who need this?" asked Rep. Johnny Bell, a Glasgow Democrat, in opposition to the bill.
Rep. Jim Gooch, D-Providence, said payday lending is "an outlet some people may have to have."
He suggested church groups and other organizations such as the AARP that oppose payday lending should consider making loans to needy people.
But Democratic Rep. Mike Denham, a Maysville banker, said before voting for Owens' bill he would be put behind bars if he made loans with even 36 percent interest.
The chairman of the committee, Rep. Jeff Greer, D-Brandenburg, voted for the bill, saying it was the desire of constituents in his district.