Louisville Courier-Journal

March 21, 2008

House approves payday loan bill
House approves tighter oversight

By Deborah Yetter
dyetter@courier-journal.com

FRANKFORT, Ky. -- The House passed a bill yesterday to increase oversight of Kentucky's payday loan industry over objections of some lawmakers who argued it might hurt small lenders.

But Rep. Johnny Bell, D-Glasgow, the sponsor of House Bill 500, said it would place minimal restrictions on the flourishing industry that offers high-cost, short-term cash loans to borrowers.

"What I am trying to do is protect the consumers," said Bell, who fended off a last-minute amendment by Rep. Kenneth Upchurch, R-Monticello, to turn the bill into a study of the payday loan business.

Upchurch said he was concerned the bill would hurt small "mom and pop" lenders.

But the House rejected Upchurch's effort after Bell spoke against it.

"To vote for a study is an insult," Bell said in a floor speech that drew roars of approval and thunderous applause.

The bill passed 56-35.

Among its provisions, the bill:

Would create a database to track the payday loan business and try to ensure customers have no more than the two loans of up to $500 each permitted under current law.

Would require a one-day "cooling off" period between loans.

Would limit loans to no more than 30 percent of a person's monthly income up to the $500 cap in the current law.

Would require lenders to offer borrowers an extended payment plan with no additional fees after the sixth loan.

The bill doesn't change the current fee, which some critics say is too high -- $15 per $100 borrowed. But Bell said he thinks the bill is a modest "first step" toward better regulating the industry.

It must still clear the Senate.

Senate President David Williams, R-Burkesville, said yesterday he hadn't seen the bill and said the Senate was busy with other matters, including the budget.

"It's getting a little bit late in this session to pass very many House bills," he said.

But supporters said it's a victory just to get it through one chamber in the face of initial resistance from the industry, which packed an earlier hearing on the bill with lenders and employees in opposition.

"We're really excited that it passed the House," said Tara Grieshop-Goodwin, with Kentucky Youth Advocates, which supported the measure

Bell said yesterday's version was a compromise with payday representatives.

Ryan Stenger, with Check 'n Go, a national payday loan business that operates in Kentucky, said he had been involved in negotiations on the bill and "we can live with it." But Stenger said the industry might seek some changes in the Senate.

Bell said the bill is needed to provide oversight of a multimillion-dollar business in Kentucky that makes its money from high fees.

A youth advocates' survey found Kentucky's payday loan industry did $826 million in loan business in 2005 -- $146 million of that charged to customers in interest and fees.

The industry has grown from 300 Kentucky payday lenders in 1999 to 800.

Customers typically pay $15 per $100 for a two-week loan, under current law. And because many borrowers renew the loan every two weeks, that amounts to an annual interest rate of nearly 400 percent, Bell said.

He said the heart of the bill is the database to be kept at the state Office of Financial Institutions. That way, the state can track transactions and make sure lenders and borrowers are following the law, he said.

Payday lenders would pay $1 per loan to fund creation of the database and would access it through a Web site.

Though people aren't supposed to have more than two loans at a time, research shows some have multiple loans from different lenders and fall behind when they can't keep up with the payments, Bell said.

But the state now has no way to track that, and lenders say they rely on the word of their customers that they don't have more than two outstanding loans, he said.

"We have an industry operating in this commonwealth affecting hundreds of thousands of people and we don't have any idea whether they're operating in the law or not," Bell said. "We've allowed this industry to grow without any supervision or oversight from the state."

Reporter Deborah Yetter can be reached at (502) 582-4228.