Ky. Lawmakers want to increase fines paid by payday lenders

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A few Kentucky lawmakers want payday loan stores to face much higher penalties for violating consumer protection law.

Senate Bill 169 and House Bill 321 would increase the range of fines available to the Kentucky Department of Financial Institutions from $ 1,000 to $ 5,000 for each payday loan violation to between $ 5,000 and $ 25,000.

State Senator Alice Forgy Kerr, R-Lexington, said she was upset last July to read in the Herald-Leader that Kentucky regulators have allowed the five largest payday loan chains to rack up hundreds of violations and paying little more than the minimum fine of $ 1,000 each time, and regulators have never revoked a store license.

No one seems to be stopping payday loan stores from bankrupting their borrowers with debts beyond legal limits, Kerr said.

Under state law, lenders are expected to use a state database to ensure that no borrower has more than two loans or $ 500 at any given time. But lenders sometimes let customers withdraw more than that, or they renew overdue loans, fattening up the original debt with additional charges that can exceed an annual interest rate of 400 percent, according to state records.

“I just think we have to be able to bond with these people,” Kerr said. “It’s a scandalous industry anyway, and whatever we can do to make sure they stay within the letter of the law, we have to.”

“Honestly, as much money as they make from some of the poorest people in our society, even $ 25,000 might not be a lot of money for them,” Kerr said.

Kerr’s Bill is co-sponsored by Senator Julie Raque Adams, R-Louisville. The same House bill is sponsored by Rep. Darryl Owens, D-Louisville.

Rod Pederson, spokesperson for the Kentucky Deferred Deposit Association in Lexington, said he hasn’t had a chance to review the bills, but he believes the current penalties are adequate for his industry.

“I don’t really see why this is necessary,” said Pederson.

The Kentucky Center for Economic Policy, a liberal-leaning advocacy group in Berea, supports the measures.

“We hope lawmakers will support these initiatives to help crack down on predatory lenders who break the rules,” said Dustin Pugel, researcher and political associate at the center. “The fines for breaking the law shouldn’t be treated as a mere cost of doing business, so we hope these tougher penalties will be a good step in protecting Kentucky families from exploitation.”

Last year, the Herald-Leader analyzed enforcement actions settled since 2010 by the state’s five largest payday loan chains: Cash Express, Advance America (doing business as Cash Advance), Check Into Cash, Southern Specialty Finance (Check ‘n Go) and CMM of Kentucky (Cash Tyme). He found that the Department of Financial Institutions rarely, if ever, imposed heavy penalties, even when the same stores were repeatedly cited for the same offenses.

Overall, to resolve cases involving 291 borrowers, the five largest chains paid an average of $ 1,380 in fines, for a total of $ 401,594. They never lost a store license. Chains accounted for 60 percent of the state’s 517 payday loan stores.

Payday loan companies and their executives have spent hundreds of thousands of dollars in recent years on campaign donations to Kentucky politicians and lobbying the General Assembly.

In addition to their bills offering heavier penalties, Kerr and Owens filed corresponding bills that would cap at 36% the interest rate that payday lenders could charge. Earlier versions of this bill have dragged on through recent legislative sessions for lack of committee action, Kerr said.

“Hope is eternal,” Kerr said. “I hope that the 36% cap will finally pass this year. But if not, hopefully we will at least get stiffer penalties. “

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