Payday lenders question proposed limits

An effort by the Kentucky Youth Advocates to tighten regulations that apply to payday loan companies could face opposition from the industry.

Irene Spargrove, public relations specialist for Checksmart Financial, which operates payday advance stores in 10 states including Kentucky, said payday loans are less expensive than overdraft or late fees.

"Consumers have chosen to go with a payday advance over not paying their bills," she said.

She said some of the suggested proposals could limit their decision-making power and, depending on how the legislation is worded, might push payday advance companies out of business altogether.

The Kentucky Youth Advocates released a report this week urging the state legislature to pass legislation that:

• Extends the minimum terms, giving borrowers more time to pay back their loans. The minimum now is 14 days.

• Lowers the cap on fees.

• Limits consumers' ability to pay a loan off in cash and then immediately take out another payday loan.

• Creates a database to track payday loans and ensure that people are not circumventing laws by borrowing more than is allowed.

Extending the minimum term to more than 14 days would create "an entirely different product," said Lyndsey Medsker, spokeswoman for the Community Financial Services Association of America, which represents the payday advance industry.

"A payday loan is a two-week loan," she said. "People use payday loans as a bridge to their next paycheck."

In some states, she said, efforts have been made to limit fees to an annual rate of 36 percent, which Medsker and Spargrove said would translate to a $1.38 fee per $100 loan.

"That legislation would push payday lending out of the state," Spargrove said, because lenders could not afford it.

She also said a database such as the one suggested by the Kentucky Youth Advocates might make customers uncomfortable.

"These consumers are adults," she said. "It is their decision to make."

According to an estimate by the Center for Responsible Lending, a typical payday loan borrower would end up paying back an average of $793 for a $325 loan. But Spargrove takes issue with that.

"That's just not the case at all," she said.

Jamie Fulmer, spokesman for Advance America, which operates 42 Kentucky locations, said more than 90 percent repay their loans within the two-week period.

If they can't, they can get an extension at no additional charge if the company is a member of the Community Financial Services Association, Medsker said. The association would like to make that a legal requirement for all payday loan companies, she said.

It is difficult to assess the Kentucky legislation because it has not yet been filed, she said.

source:http://www.kentucky.com/101/story/309704.html