Louisville Courier-Journal

April 9, 2008

Letter to the Editor: Setting Limits on Payday Lenders

We at Kentucky Youth Advocates concur with The Courier-Journal's editorial on April 4 regarding the outcome of the legislative session. In many ways, the 2008 General Assembly has been a disappointment. Yet -- as the editorial pointed out -- a number of bills critical for Kentucky's children, such as booster seats, anti-bullying and dental screenings -- passed with bipartisan support.

The spotlight in the coming days will be on the potential budget vetoes and legislative response. However, we would suggest that there remains one important policy opportunity that demands action -- HB 500. This proposal from Glasgow's representative Johnny Bell tackles the sticky problem of payday lending in Kentucky.

If there is an industry in Kentucky that truly operates with an unbridled spirit, it is payday lenders. We know, for instance, that a payday lending operation opens every four days in the Commonwealth. Between 1999 and 2006, payday lender retail locations grew at a rate of 121 percent. The estimate is that payday lenders collected some $145 million in fees last year.

We do not advocate that payday lenders be put out of business. Unfortunately, there is a distinct lack of alternative products for low-income Kentuckians offered by mainstream financial institutions. However, at interest rates equivalent to 451 percent APR, the short-term fix often becomes a long-term financial problem for Kentuckians. Payday lenders operate in a climate of no oversight or regulation, and we call for the state to begin to get a handle on what is and what is not happening at these establishments.

Candidly when conversations began around HB 500, we had hoped for more comprehensive and rigorous provisions around such issues as lower interest rates and longer waiting periods. Rep. Bell worked hard at crafting a piece of legislation that could become reality, and therefore some honest compromises were reached. He worked with the industry, advocates and colleagues across the aisle. Because of that effort, there is much to like in HB 500.

For instance, it begins to align the amount that can be borrowed with the customer's income and mandates that customers wait until the next business day before taking out another loan. Perhaps, most significantly HB 500 establishes a database to ensure that the laws currently on the books are being followed. The industry itself admits that 25 percent of current loans are illegal because there is no way for payday establishments to determine a potential customer's eligibility. While not exactly exciting, the database would prevent that from occurring. It is a moderate and measured step in the right direction of protecting low-income Kentuckians from predatory practices.

The House has passed the measure. The Senate is ready to pass it as well -- if only leadership will hear the bill. We hope our fellow Kentuckians will call upon their senators and Senate leadership to move ahead on this bipartisan measure.

It is tough taking on a $40 billion industry, especially when it has been spoiled by an atmosphere in which anything goes. Representative Bell discovered that when the industry blanketed his home district with unfair mailings about him and about the measure. We at KYA have discovered it as the industry flooded the General Assembly with a legion of highly paid lobbyists.

Even if the industry is, in fact, a well-heeled force, it must be confronted. The price of being poor in Kentucky is too high and a thoughtful beginning step to lower that price is HB 500. Virginia, Maryland, West Virginia and North Carolina have begun to defend their families from predatory lending. It is time for Kentucky to do the same and bridle some of that payday lending spirit.

TERRY BROOKS

Executive Director

Kentucky Youth Advocates

Louisville 40299