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Wednesday, February 24, 2010

Kentucky Needs To Rein In Payday Loan Sharking NOW.

Payday loans neared $1 billion in Ky., study finds
By Deborah Yetter

FRANKFORT, Ky. — Payday lenders in Kentucky lent nearly $1 billion in 2008, collecting roughly $158 million in “predatory’’ fees, according to a report a Kentucky public interest group released Tuesday.

“These fees drain assets from low-income and working-class families,” said Melissa Fry Konty, a research and policy associate with the Berea-based Mountain Association for Community Economic Development.

Konty, the report’s author, outlined its findings at a rally in the Capitol Rotunda involving supporters of House Bill 381. The measure would limit to 36 percent the annual interest payday lenders could charge — the rate Congress imposed in 2007 on payday loans to military families.

Konty said she defined “predatory loans’’ as those to individuals who take out five or more of the short-term cash loans per year. She said national research shows that nine out of every 10 payday loans are taken out by such repeat borrowers.

The industry has flourished in Kentucky since the legislature legalized it in 1998, and the state now has 782 payday lenders in 95 of the 120 counties, Konty’s report said. The businesses tend to cluster in low-income urban and rural areas, it said.

In Kentucky, the law allows people to take out up to two loans every two weeks that total $500 — at cost of $15 per $100. But critics say many borrowers take out repeated loans, trapping them in a cycle of debt and rising fees that can amount to an annual interest rate of 400 percent or more.

Rep. Darryl Owens, D-Louisville and the sponsor of HB 381, called on lawmakers to approve the bill. He noted that 16 states either ban payday lending or limit interest — including Ohio, which has imposed a 28 percent cap.

Several representatives of Kentucky’s payday loan industry attended the rally and said afterwards that lawmakers should first allow the state to establish a database, authorized by last year’s legislature, that’s meant to better track the industry in Kentucky and make sure people are getting no more than the two loans allowed by law.

The industry has argued that the loans are an important service to people in a financial emergency.

“Let’s let the database work,’’ said Pat Crowley, a spokesman for the Kentucky Deferred Deposit Association. The database, to be administered by the state, is supposed to be operating by April.

But members of the Kentucky Coalition for Responsible Lending, a group of religious and public advocacy leaders who held Tuesday’s rally, dismissed that suggestion.

“Some of our legislators are hiding behind the database, saying we need research,’’ said the Rev. J. Richard Sullivan, a Roman Catholic priest from Louisville. “We need to act now.”

Several speakers called on Rep. Jeff Greer, D-Brandenburg, the chairman of the House Banking and Insurance Committee, to get the bill out of his committee.

Greer said his committee will hear testimony Wednesday from the commissioner of the Department of Financial Institutions about the status of the database.

“However, I am inclined right now to not hear that bill until we are able to ... get a system in place that we can collect data on this industry,” he said. “If we need to regulate it, we can move forward with better direction.”



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