New Bill Banning New Kentucky Payday Loan Providers Passes

Inside Subprime: April 9, 2019

By Grace Austin

A Kentucky bill banning all new payday loan providers in the state has been passed into law.

Senate Bill 145 will create two different business licenses for check cashing and deferred deposit services businesses. Gov. Matt Bevin, R-Kentucky, signed the measure in March 2019.

Currently, there’s only one state license available. Under the new law, there would be a check-cashing license for businesses that charge a fee for cashing a check, and a deferred deposit license for payday loan providers that offer high-interest, short-term loans.

But a last-minute amendment to the bill by the state Senate president would now in effect ban new payday loan providers. That addition states that there won’t be any new permanent deferred deposit licenses. That means a temporary moratorium on new payday loan licenses would now be permanent.

That temporary moratorium for new licenses went into effect in 2009 and will expire this summer.

“We’re not going to do anymore payday lenders after,” said Sen. Rick Girdler, R-Somerset, who sponsored the bill and is vice chair of the state Senate Banking and Insurance Committee.

Payday loan providers that already have a state license are allowed to continue to operate.

Girdler explained how many Kentucky lawmakers were thinking in passing the bill. “I think the majority of the Senate wanted [the possibility of new licenses] to be done away with. And probably it is a good thing.”

In 2009, payday loan providers actually welcomed the moratorium, and were critical of the new interest limits that consumer advocates and some lawmakers wanted to impose on the industry in the state.

Since then, additional APR caps on payday loans have not been installed in Kentucky. Payday loan providers operating in the state can still charge upward of 450 percent in annual interest.

Previous legislation to pass a 36 percent interest cap, long viewed by consumer advocates as an acceptable limit, has stalled in the legislature.

The state does have a payday lending database, though. The Kentucky Deferred Presentment Transaction Database was created by the Kentucky Legislature in 2009. The database is supposed to ensure that borrowers can’t take out more than $500 at a time.

But state records show that payday loan providers sometimes let customers take out more money than that, or they roll over unpaid loans, making the original debt with additional fees over 400 percent APR, according to 2017 analysis by the Lexington Herald-Leader.

The Herald-Leader also found that the state’s Department of Financial Institutions rarely charged high penalty fees on payday loan providers that violated the law.

Perhaps the new change means lawmakers are finally siding against payday loan providers.

The new law will go into effect in June 2019.

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like Kentucky, KansasLouisville,  Kansas CityLawrenceOlatheTopeka and Wichita.