Future of payday lending bill up in the air

FRANKFORT — A measure that would cap interest rates on all short-term loans at 36 percent may never get a hearing in the Democratic-controlled House, despite the backing of Democratic Gov. Steve Beshear.

Banking and Insurance Committee Chairman Jeff Greer said he has not yet decided if he will hear House Bill 381, a measure that has 19 co-sponsors and the support of more than 50 social service groups.

Greer, D-Brandenburg, said Monday that he would first like to hear more about a database that was approved in 2009 to track all payday loans in Kentucky. The database would be used to determine if people were receiving more loans than the law allows.

Democratic Rep. Johnny Bell of Glasgow, who sponsored the database bill, said the law called for work to begin on the database last summer but did not set a deadline for when the system must be operational. Greer and Bell both said on Monday that they understand the system should be ready this summer.

Greer said he would like Department of Financial Institutions Commissioner Charles A. Vice to update his committee on the database. Specifically, Greer said he would like to know what type of information that database will generate before deciding to hear the proposal to cap interest rates.

Those who back the interest rate cap say there’s no reason to put the bill on hold until the database is operational. “That data will do nothing to lower these interest rates that can be more than 400 percent,” said Rep. Darryl Owens, D-Louisville, the bill’s sponsor.

Payday loans snare many people in a cycle of debt as they take out one loan to repay another, say proponents of the bill.

But payday lenders say they offer a needed service for people that traditional banks won’t serve. Their industry keeps people from losing their homes and helps put food on the table, they say.

Beshear, a former payday lobbyist, applauded the proposal on Monday. “This legislation is the right move to protect families, especially in these difficult economic times,” Beshear said in a written statement.

House Speaker Greg Stumbo, D-Prestonsburg, has also said that he personally supports the measure.

– Beth Musgrave

Filed Under: KY General Assembly • Social Services • State Government