Right for consumers to choose preserved in Kentucky

Monday, April 11th, 2011 By

A tour group on the interior steps of the Kentucky capitol building.

The people of Kentucky still have the freedom to choose payday loans if the product suits them. (Photo Credit: CC BY-ND/EPSCOR)

The recent failure of House Bill 182 in the Kentucky House Banking and Insurance Committee – a bill that would have capped payday loan rates at 36 percent APR, effectively killing the industry in the state – is a sign that the will of the people still means something, suggests Kentucky Community Financial Services Association of America spokesman Kevin Borland. In an op-ed piece for the Lexington Herald-Leader, Borland reminds us that consumers prefer choice, and freedom of choice is a factor in the current battle over the short term loans industry.

Victory against House Bill 182 – for now

While free market capitalism carried the day in a close 13-10 vote against Kentucky House Bill 182, opponents of payday loans insist that they will regroup and re-introduce the same bill in 2012. Such stubbornness illustrates how much Kentucky activists misunderstand payday loans, writes Borland. State law prohibits payday lenders from charging interest. In Kentucky, the product is categorized as a single-payment, fee-based product.

Borland suggests that the opposition’s use of APR as a yardstick is “an attempt to trick legislators and the public” into thinking that short term loan pricing is exorbitant. In reality, a flat fee of $15 to $25 per $100 loaned on a typical two-week payday loan is a 15 to 25 percent fee, depending upon the lender.

Having the CLOUT to be hypocritical

The Citizens of Louisville Organized and United Together (CLOUT) and the Kentucky Coalition for Responsible Lending (KCRL) supported House Bill 182, as did the AARP. Interestingly, CLOUT and the KCRL are heavily funded by banks and credit unions that compete in the short term loans market. While there’s nothing wrong with healthy competition in a free market economy, it’s another matter entirely when CLOUT and KCRL attack payday lenders while accepting money from their competitors. At the very least, a disclaimer about a lack of impartiality should fly front and center, says Borland.

AARP competes directly with payday loans through its own credit card through Chase Financial. These allow AARP members to obtain cash advances, which Borland says bears a high interest rate.

Consumers make the best financial choice for their situations

While payday loans may not be ideal for every financial scenario, they can be the least expensive option available, particularly among credit constrained consumers. Borland believes that CLOUT, KCRL and AARP would do better to find alternatives if they think short term loans are harmful. The fact that those organizations do not do so may suggest that the attacks are all bark and no bite.

Sources

CLOUT funding

KCRL coalition membership

Lexington Herald-Leader

The CFSA encourages responsible lending and borrowing

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  • kentucky taxpayer

    Victims of payday loans are no more exercising their “freedom to choose” than victims of loan sharks are free to “exercise their freedom to choose.” Payday lenders prey on vulnerable poor at exorbitant rates and they are nearly as bad as loan sharks when it comes to the depths to which they will stoop to collect their disguised usurious interest. Kevin Borland and his ilk are scumbags who will sell their grandma’s soul for the all mighty dollar. May karma crash him down lower than the poorest person his advocacy has harmed.

    • Starlow

      That's a rather manipulative arrangement of words there, kentucky taxpayer. Your choice of words suggests that you presuppose that those who use payday loans are "victims," yet there is plenty of evidence to suggest that such a juxtaposition is invalid. If you have sources that back up your statements with hard data, by all means, share. I'll be happy to do the same, beyond what's covered in this article. As it stands, you appeal only to emotion, rather than logic. It's a game everyone sees from talking politicos, every day. Fallacious arguments have little or no merit, perhaps beyond entertainment.