March 30, 2009

Former payday loan lobbyist Steve Beshear signed a bill that could help, at least a little, in curbing the industry's excesses. He didn't like the provision slipped in at the last minute by Sen. Damon Thayer, R-Georgetown, that puts a 10-year moratorium on new businesses of this kind opening up in Kentucky. He also preferred that the bill impose a 36 percent payday loan interest cap, which it didn't. But he signed the measure anyway.

His thinking seems to be that the moratorium is unconstitutional and can be eliminated by the courts, without threatening the bill's most important provision: creation of a database that identifies borrowers who have more than two loans at a time and more than $500 worth of loans outstanding. Industry says this will reduce such loans by perhaps 30 percent. Advocates say the only real protection for consumers would be an aggressive interest limit.

The Governor is hoping that the courts will eliminate the moratorium and that he'll have some future opportunity to push for a 36 percent interest cap. It might have been simpler, and his commitment to reform more credible, if he had simply vetoed what the General Assembly passed.

There is a place in the market for payday loans, but it's a place that should be carefully circumscribed by sensible, effective limits. Otherwise, hard-pressed individuals and families will continue to be victimized.

It's all too easy for folks in financial crisis to follow this route into a cycle of more and more borrowing, to cover more and more debt. What a way to provide what the industry claims is a public service.

Source:

http://www.courier-journal.com