Kentucky State Sen. Reggie Thomas, D-Lexington, pre-filed a bill with the Kentucky General Assembly to cap the amount of interest charged by payday loan lenders.
The legislation would lower borrowers' rates according to how much they actually borrow, requiring lenders to display their interest rates and to cap maximum rates along a sliding scale relative to a borrowers income and loan amount.
While several states have passed payday loan restrictions in the last year, the Kentucky measure - if it goes through - would be the state's first successful regulation of payday loan interest rates. The subject won't be reviewed by state lawmakers until the 2015 General Assembly session starting in January.
Payday lenders in Kentucky currently can charge customers up to 391% annual interest on their original loans. According to a 2012 report by the Pew Charitable Trusts, Kentucky at the time was one of 27 states that didn't limit the amount of annual interest that providers of payday loans can charge.
"When you have to pay out such an extraordinary high rate of interest, it takes money away from fundamental needs these families have: Buying clothes, feeding their children, buying necessary medicine," Thomas said. "So it has a harsh impact on the lives of these families."
The payday loan industry has donated tens of thousands of dollars to both Democrats and Republicans and has spent heavily lobbying the General Assembly. Several previous efforts in Kentucky to pass legislation restricting the payday loan industry have failed. Still, Thomas believes his bill has a strong chance of being passed.
"I don't think any kind of lobbying efforts or campaign contributions should frustrate or thwart any discussion when it comes to policy thats good for Kentuckians," Thomas said. "So that's not in my mind at all, in terms of trying to do something that's beneficial to Kentuckians in terms of who donates to whose campaign."
