Unlike Kentucky — 05/02/08

Sat, May 17 2008

— Just weeks after the 2008 Kentucky General Assembly failed to approve a bill that would have placed reasonable restrictions on payday loans in Kentucky, legislators in neighboring Ohio seem on the verge of enacting one of the nation’s most restrictive laws on payday loans.
Here’s the surprising part: While Republican legislators led the effort to kill House Bill 500 in the 2008 Kentucky General Assembly, GOP legislators in Columbus are supporting a bill that places more limits on payday loans than those proposed by Democratic Gov. Ted Strickland. Indeed, if what the Republicans are supporting becomes law, opponents of the bill say it will close down the storefont lenders who often are the only source for those with bad credit to receive short-term loans.
On Monday, Strickland came out in support of a 36 percent annual rate cap on payday lending. That’s only a tiny fraction of the current average of 391 percent annual interest on payday loans in Ohio.
On Tuesday, the Republican-led Ohio House did the governor one better, supporting a 28 percent cap in interest than can be charged for payday loans. On Wednesday, the Ohio House of Representatives approved a bill with the 28 percent cap by a lopsided 68-26 margin. Obviously, the bill had broad support from members of both political parties.
If the bill is approved by the Ohio Senate, it would give Ohio the strictest law in the nation governing payday loans. It also would lead to the closing of payday lending businesses across the state, resulting in the loss of 6,000 jobs, said Darryl Dever, the payday lending industry’s chief lobbyist in Columbus.
Contrast what is happening in Columbus with what happened in Frankfort. State Rep. Johnny Bell, D-Glasgow, was the primary sponsor of House Bill 500 in the recently completed 2008 Kentucky General Assembly. Far short of outlawing payday loans in Kentucky, Bell’s bill would have put what we consider to be reasonable restrictions on the short-term loans. Under Bell’s bill, borrowers would be given 30 days, instead of two weeks, to repay the original loan without incurring additional penalties. The permissible payday lender fees would have been reduced from $15 per $100 to $12 per $100.
Bell’s bill still would have allowed lenders to tack a stiff penalty on loans that are not repaid within 30 days and to charge a high interest rate and add outrageous penalties to late loans.
House Bill 500 was adopted by the Kentucky House of Representatives, but it died in the Senate without a vote being taken. Clearly, the Republicans who control the Kentucky Senate had no interest in changing the status quo regarding payday loans in Kentucky.
Payday lenders serve a purpose. They often are the only way some people with poor credit histories can get short-term loans necessary to pay utility bills and buy enough food to last until payday. In short, payday lenders offer loans to the desperate and to the irresponsible. However, instead of providing the short-term help the poor need to make ends meet, payday loans often make the financial condition of the borrowers much worse. And the terms of the loans are such that the lenders make a healthy profit off of them.
The 28 percent cap proposed by Republican legislators in Ohio is probably too restrictive. What makes it so surprising is that much more severe restrictions are advancing in Ohio, while more reasonable restrictions died in Kentucky. Just as surprising is that Republican lawmakers who blocked House Bill 500 in Frankfort are supporting a much more restrictive law in Columbus.