Right for consumers to choose preserved in Kentucky
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.