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Bill to Lower Cost of Payday Loans on KY Lawmakers' Docket

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Thursday, January 20, 2011   

FRANKFORT, Ky. - A bill capping interest rates on payday loans is awaiting a hearing in a state House committee when lawmakers reconvene in a couple of weeks.

House Bill 182, sponsored by Rep. Darryl Owens, D-Louisville, caps interest at 36 percent on those short-term loans that can now rack up to 400 percent annual interest.

Kent Ostrander, executive director of The Family Foundation of Kentucky, a conservative public-policy group, says he believes in the free-market system but adds that a 36-percent interest rate cap could spring families from a debt trap they currently can't escape.

"We should never have predatory policies that prey on a particular element of our society. Clearly, it's most likely the poor that are targeted with payday lending."

Recent data suggests that an average $350 payday loan ends up costing more than $800 once fees and interest are added, proponents of the cap say, because the loan is typically rolled over eight times. Industry representatives argue that cost is distorted and say higher rates and fees are justified given the high-risk nature of clients with bad credit.

In some states where caps have been placed on loans, payday lenders say they've had to close up shop. Industry spokesmen also warn that the measure would deprive thousands of families access to short-term credit and put more than 2,000 Kentuckians out of work.

Anne Marie Regan, co-chair of the Kentucky Coalition for Responsible Lending, says the goal is not to put quick-cash operations out of business.

"What we're suggesting is that they only be allowed to charge a reasonable rate of interest that all other lenders are permitted to charge. And we feel that 36-percent interest rate would create a level playing field for lenders."

Ostrander agrees, and offers a recommendation.

"The market should also be broadened, in our opinion, so that even some of the more established lending institutions - banks - should perhaps get involved and not only make money through established credit but also through those that don't have established credit."

Seventeen states have either never allowed payday loans or have capped interest rates at 36 percent. The bill is waiting for consideration by the House Banking and Insurance Committee.


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