KY Group Calls for Law to Cap Payday Loans
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July 27, 2009
FRANKFORT, Ky. - The Kentucky Coalition for Responsible Lending, representing 45 interest groups, is asking the state General Assembly to enact legislation that would cap interest rates on so-called payday loans at 36 percent. Kip Bomar of Community Action Kentucky says families need protection from the high price of predatory small loans that are so prevalent in Kentucky.
"Most loan businesses in Kentucky can only charge 36 percent interest. Check-cashing businesses, which make payday loans, can charge 15 percent interest every two weeks; that amounts to about 391 percent a year."
Bowmar cites the case of a Frankfort woman who refinanced a loan, had to refinance again, and in 18 months had paid almost 2,000 dollars - ten times what she had borrowed.
"In the space of a month, someone can become cash-strapped very quickly, and then a debt spiral could begin that people have a difficult time getting out of."
The payday loan industry counters that it provides a valuable service, which has high costs that require high fees. Kentuckians pay $131 million annually in fees to payday lenders.
Fifteen other states have successfully enacted interest rate caps, and a promising development for the coalition was Governor Steve Beshear's commitment to work on implementing the rate cap in the 2010 legislation session.