Toughen fines for rogue lenders

Sen. Alice Forgy-Kerr
Sen. Alice Forgy-Kerr

A bipartisan pair of Kentucky legislators are trying to make life better for their constituents, and harder for payday lenders who break Kentucky law. They deserve the support of their colleagues.

The identical bills, Senate Bill 169, sponsored by Sen. Alice Forgy Kerr, R-Lexington, and House Bill 321, sponsored by Rep. Darryl Owens, D-Louisville, would raise the fines that can be imposed on payday lenders to a minimum of $5,000 for each violation, up from $1,000 now. Under the proposed legislation they can top out at $25,000, up from a ceiling of $5,000 now.

The legislation is a response to John Cheves’ report last summer that found payday lenders regularly violated Kentucky law restricting them from making more than two loans or a total of $500 to any one borrower at a time.

In some cases, despite hundreds of violations, the Kentucky Department of Financial Institutions only imposed the minimum $1,000 fine for each violation.

This slap-on-the-hand enforcement reduced the fines to a simple cost of doing business for the lenders, whose profits rely on borrowers who can’t repay their short-term loans and so incur high interest charges and big fees when they’re rolled over into a new loan.

Meanwhile, clients who come to them because they need cash to make ends meet until the next paycheck, fall further behind. Effective annual interest rates — interest plus fees — can top 400 percent, according to state records. One woman told Cheves she paid over $1,400 in two years on what was originally a $400 loan.

Kerr told Cheves she was upset after reading his report and concerned that there was limited enforcement, allowing them to bankrupt Kentuckians who were already cash-strapped. “I just think we need to be able to buckle down on these people,” Kerr said.

The payday lending industry, which is banned in many states, has enjoyed a warmer reception in Kentucky thanks, no doubt, to generous donations to both major parties and many candidates over the years.

Terry Brooks, executive director of the nonprofit Kentucky Youth Advocates, complained to Cheves last summer that “Historically, and certainly during Gov. (Steve) Beshear’s two terms in Frankfort, there was no political backbone to take on the payday lenders.” He hoped that Gov. Matt Bevin would take it “more seriously as a moral issue.”

Hopefully Bevin will demonstrate he’s taking this abuse of both citizens and the law seriously and lend his support to this bipartisan legislation.