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Senate approves bill on payday loans

Wednesday, 11 March, 2009

A bill that would ensure payday lenders don’t face any more competition in Kentucky for 10 years sailed through the Senate yesterday with no discussion and only token opposition. But Gov. Steve Beshear said he has concerns about the legislation, and his staff will have to review it before deciding whether to oppose it. Opposition to House Bill 444 in the Senate came from four Democrats and two Republicans. The bill passed by a vote of 32-6. I don’t think it’s a moratorium, I think it’s a monopoly,” Sen. Robert Stivers, R-Manchester, said in an interview.

“I think we ought to be regulating these people more instead of giving them a monopoly.” Sen. Kathy Stein, D-Lexington, explained on the Senate floor that she believes the moratorium on new payday lenders violates both the U.S. and Kentucky constitutions. The bill now goes back to the House for consideration of Senate changes. It began as a modest effort to regulate the industry by requiring a state database to track payday loans to ensure that people borrowing from the high-fee lenders have no more than two loans from them totaling no more than $500.

Payday lenders offer the short-term loans to people who often don’t qualify for bank loans. It generally costs about $15 for a $100 loan, repayable in two weeks. That translates to 390 percent annual interest. Last week, the Senate State and Local Government Committee, at the urging of its chairman, Damon Thayer, R-Georgetown, amended the bill to also prohibit any new businesses that offer payday loans for 10 years. In explaining the amendment, Thayer said it was a bill the check-cashing industry wanted. “I was told it was an agreed-upon bill by the deferred-deposit industry,” he said.

Tres Watson, a spokesman for the Community Financial Services Association of America, which represents payday lenders, said yesterday that his group didn’t ask for the legislation but didn’t have a problem with it. When pressed in a telephone interview to name those who sought the legislation, Thayer refused to say who was behind it. He then excused himself and promised to call back. Lourdes Baez-Schrader, a spokeswoman for Senate Republicans, then returned the call for him and said she would try to find out who was behind the legislation. She later said the bill was requested by “the little people.” She did not elaborate.

Thayer eventually did call back, but said only that he spoke with “numerous people” in the industry who favored the bill. He then refused to answer any other questions. Richard Beliles, chairman of Common Cause Kentucky, which pushes for open government, said yesterday that it should be a concern when legislators won’t say who is behind the bills they push. “It’s not in the public interest,” he said. The bill also is being criticized by a coalition of groups that work on social justice issues. They say passing it would compromise future legislation to rein in the industry.

The Kentucky Coalition for Responsible Lending opposes the bill because it doesn’t go far enough in regulating the industry. Terry Brooks, executive director of Kentucky Youth Advocates, said the coalition wants the legislature to hold off changing laws that relate to payday lenders until it tackles reforming the industry, and limiting interest to 36 percent annually. The coalition has no position on the moratorium. Rep. Johnny Bell, D-Glasgow, who introduced HB 444, said he has no problem with the moratorium amendment. He said he just wants his bill to pass because the state Department of Financial Institutions can’t monitor loans to ensure people are not taking out too many for too much money.

Beshear, who during the 1990s was a lobbyist for the industry, said yesterday that he favors the bill, though he is “concerned about the 10-year moratorium.” “I would like to see a strong bill that regulates payday lending in the commonwealth. I think Rep. Bell’s bill as it originally started … is at least a step in the right direction,” Beshear said. He said the database Bell’s bill creates would immediately eliminate about a quarter of all payday loans. Of the moratorium, he said: “I’m going to look at it closer. … It bothers me to be putting a restriction like that in there.”