Kentucky Passes Banking Bill; Good News for Payday Loan Companies?
Against the wishes of consumer advocates tha feared Senate Bill 45 would roll back payday loan protections, The House of Representatives voted 79-16 to pass the legislation. It exempts state-chartered banks from most Kentucky laws or regulations that don’t apply to national banks.
Those laws include the High Cost Loan Act that legislators enacted in 2003 to protect consumers against predatory loans. It included some disclosure requirements and put limits on some fees, according to The Courier-Journal.
The Kentuck Bankers Association has said SB 45 is needed to erase a competitive disadvantage in selling second-mortgage loans. The High Cost Loan Act forbids state banks from financing the premium for credit insurance over the life of a second-mortgage loan, which can add thousands of dollars to a borrower’s outlay. Such insurance pays off a loan in the event of death.
Consumer groups say financing credit life insurance over the life of a 20- or 30-year loan is an abusive practice. They say many borrowers don’t realize how much it will cost them.
Two large consumer-finance companies, Household International and Citigroup, have agreed to halt the practice. Before passing SB 45, legislators approved an amendment by Rep. Rob Wilkey saying banks still will be subject to laws on interest rates and payday loans.
But the amendment didn’t preserve the High Cost Loan Act, although earlier amendments filed by Wilkey did. Those amendments weren’t called for a vote yesterday.
Wilkey said last week he was “conflicted” about leaving the High Cost Loan Act out of his amendment, but did so after talking to representatives familiar with banking rules. He said they told him U.S. laws contain adequate consumer protections. Supposedly, these will help those who are counting on faxless payday loans for assistance.