More On Payday Lending In Kentucky.

Payday lending not on agenda

The best thing that can be said of payday lenders is that their practices are no more predatory than some by banks, credit unions and credit card companies.

In fact, avoiding big fees on small overdrafts is one of the reasons that people turn to payday lenders.

Kentucky's legislature can't do anything about banks or credit cards. They're controlled by the federal government.

Congress and the Federal Reserve have acted in recent months to strengthen protections against surprise overdraft fees and deceptive credit card charges. They should do still more to protect consumers, especially since banks and credit card companies are already inventing new scams.

The legislature can do something about payday lending which, the Kentucky Coalition for Responsible Lending says, collected an estimated $158 million in predatory fees from Kentuckians in 2008. (Predatory is defined as payments from borrowers who have five or more loans a year.)

The coalition found that the average cost of a $350 payday loan in Kentucky is $822.50. This includes $472.50 in interest and equates to annual interest of around 400 percent.

Payday loans, also known as deferred deposit loans, would be capped at 36 percent interest under House Bill 381, sponsored by Rep. Darryl Owens, D-Louisville, and 21 other House members.

The bill has broad support, ranging from AARP and Frontier Housing to the Urban Leagues of Lexington and Louisville and a group of Northern Kentucky churches that help the homeless.

The Kentuckians who make up this coalition are not even getting a hearing in this session.

Although Gov. Steve Beshear and House Speaker Greg Stumbo have said they support a 36 percent cap, the chairman of the House Banking and Insurance Committee, Rep. Jeff Greer, D-Brandenburg, has refused to hear the bill.

Greer did hear testimony this week about a database that the state will bring on line later this year that will make it possible to enforce the state law limiting payday borrowers to no more than two loans at a time. Payday loan volume is expected to decline by about 20 percent once the data base is available.

But that does nothing to solve the larger problem of repeat loans that bury borrowers under debt.

People taking out payday loans borrow against their next paycheck by writing a postdated check. The loans usually last two weeks. Not surprisingly, many low-income borrowers can't afford to repay the loan and still cover their other expenses.

Kentucky law prohibits renewing the loans. So borrowers take out new ones. The Center for Responsible Lending estimates that 76 percent of all payday loan volume is attributable to repeat borrowing.

Nine out of 10 payday loans are to repeat borrowers who take out five or more loans a year, says a brief by the coalition that used numbers from states that have better data than Kentucky (kyresponsiblelending.wordpress.com).

"On average, borrowers have nine or more payday loans in a year," says the brief. "In fact, the product depends upon the consumer's failure to repay and the resulting repeat borrowing, which generates $24 billion of the $27 billion annual loan volume for the industry (nationally)."

Payday lenders reinvest part of their profits in political candidates. The Kentucky Deferred Deposit Association has given $49,000 to candidates for state office in Kentucky since 1998. Cash Express CEO Garry McNabb of Crossville, Tn. has given $17,000 since 2007.

Not surprisingly, Greer, who has the power to kill laws the industry dislikes, has gotten $1,000 from the Kentucky Deferred Deposit Association for his upcoming re-election, $500 from McNabb and $250 from Laura Babbage of Lexington whose husband, Bob, lobbies for Cash Express.

Payday lenders can roll out their own arguments against the criticisms. Greer's refusal deprives lawmakers and the public of the benefits of that debate.