With one critic calling it “legal loan-sharking,” a coalition of advocates, religious leaders, consumer protection officials and lawmakers lined up Monday to support a bill aimed at curtailing the payday loan industry in Kentucky.
“It is so easy to get caught in this trap,’’ said Mary Love, 65, of Oldham County, who said she became mired in a cycle of such loans in 2004. “The fees keep adding up and putting you deeper into the hole.”
Rep. Darryl Owens, D-Louisville, said his House Bill 182 represents the third effort in three years to limit interest rates that critics say can rise to more than 400 percent for the short-term cash loans.
Owens’ bill would restrict annual interest to 36 percent, the same limit Congress imposes on payday loans for military personnel.
“Hopefully, the third time will be the charm,” Owens said.
Rep. Jeff Greer, D-Brandenburg, who is chairman of the House Banking and Insurance Committee, said he plans to hold a hearing on HB 182 next week and call it for a vote.
“I intend to stay there till we vote it up or down,” Greer said. “It is time to vote on it.”
But even if the bill passes, payday lenders will find a way to get around it like they have across the river in Ohio.
The dispute over Ohio’s payday lending practices began after voters upheld a 28 percent interest rate cap on payday loans in November of 2008, and many payday lenders began operating under several small loan laws already on the books. The legislature approved the cap in the spring of 2008, and payday lenders fought back with the voter referendum, but failed.
The small loan laws, which have been in existence for decades, are intended to govern installment loans, not single-payment, two-week payday loans. Payday lending opponents say the lenders are exploiting those laws to avoid the 28 percent rate cap. Lenders contend they are legitimately licensed by the state to make the small loans.
Some 800 of the Ohio’s 1,600 payday lending stores have shut down since rates were capped – and the rest are “trying to make a go of it” by adhering to the small loan laws, said Ted Saunders, CEO of CheckSmart Financial Co., a national payday lender with more than 200 stores in 10 states. “We’re lending money for far less than we did when all this started,” he said. “This is not business as usual. The activists just want to put us out of business entirely.”
Those activists are pushing the Ohio legislature to move once again, to close the loopholes in the loan laws by placing them all under the 28 percent cap. More than 1,000 payday lenders already have gotten licenses to make short-term loans under the old small loan laws, which allow for high origination fees and other charges, according to a report by the Housing Research & Advocacy Center in Cleveland.
Under those laws, for a 14-day loan of $100, lenders can charge an origination fee of $15, interest charges of $1.10, and a $10 credit investigation fee, for a total amount of $126.10, or a 680 percent annual interest rate.
Of course, Republicans are firmly on the side of the payday lenders being able to charge 500%, 600%, 700% or more interest rates, and that's saying nothing about regular banks, who charge rates nearly as high for their own version of payday lending for customers who need an advance on their direct deposits, often used to avoid incurring hundreds of dollars in overdraft fees.
That's right: banks have been getting into the payday lending business and if you're wondering why they've been able to pay off TARP money so quickly, now you know: trapping customers between $40 or $50 per overdraft or a vig of $1 on every $10 taken out on a direct deposit advance to avoid the overdraft means you're damned if you do, damned if you don't.
In the end, payday lenders will find a way to make their billions. Here in Northern Kentucky there's a payday lender in every strip mall, if not more than one. If Ohio is any indication, all HB 182 would do is thin out the competition a bit.
Why should anyone have sympathy for people who can't take care of basic finances? Millions of Americans pay their bills every month and play by the rules. These fees only affect those who don't. It's a tax on the financially ignorant, just like rent-to-own places and check cashing services. Here's some advice: get a savings account. Have your bank take out $20 every two weeks out of your direct deposit. Don't put yourself in a situation where you need a short term loan. If everybody in America did that, payday lenders would vanish overnight.
ReplyDeleteYes, get a savings account at 0.5% interest, and then the bank can use your money for a payday loan to someone whose car broke down and needs $700 in repairs to get to work.
ReplyDeleteThat is, if the bank will allow you to start a savings account with $20. Some banks charge a fee for opening a small account.
(Are any check-cashing outfits still in business, now that WalMart cashes paychecks free?)
(Payday lenders vanished overnight when Pennsylvania put in laws like Zandar mentioned.)
Typical libertarian whine: "They're stupid, why do you care? Unless you're stupid too!" Oh, and "It's my god-given right to scam stupid people!" Well, until they get scammed themselves, and then "oh dearie me help me gubbermint".
ReplyDelete