In fight over payday lending abuses, it’s churches vs. almighty dollar

February 22, 2015

I love free enterprise, but I believe there is a special place in hell for business people who exploit the poor and vulnerable and politicians who enable them.

A good example is the payday lending industry.

A diverse coalition of Kentuckians, including conservative and liberal religious leaders, plan to gather Tuesday at the state Capitol to urge lawmakers to pass bipartisan legislation limiting the interest and fees on short-term payday loans to an annualized rate of 36 percent.

That is still high compared to normal borrowing costs. But it would be a big improvement over the 400 percent or more that payday lenders can now charge customers.

Photo illustration by Charles Bertram

Photo illustration by Charles Bertram

These two-week loans of $500 or less are designed to help working people cover expenses until their next paycheck. But studies show three-fourths of these loans are renewed or turned into new loans, sometimes trapping borrowers in an endless cycle of debt.

Payday lending emerged as an industry in the 1990s. With about 20,000 storefronts, plus online sites, payday lenders made $40.3 billion in loans and collected $7.4 billion in revenues in 2010, according to the Consumer Federation of America.

Kentucky is one of 32 states that allow triple-digit interest rates on payday loans. The state’s 781 payday lending stores in 2010 made $995.7 million in loans averaging $350 each, according to the Center for Responsible Lending.

Payday lenders collect at least $121 million a year in interest and fees from some of Kentucky’s poorest people, according to the Kentucky Coalition for Responsible Lending. Most profits go out of state — or farther. Advance America, one of Kentucky’s largest payday lenders, is owned by Mexico’s Grupo Elektra.

The Defense Department has limited the interest that can be charged to military personnel at 36 percent, as the Kentucky legislation seeks to do for everyone. Kentucky has put a few restrictions on payday lenders in recent years, but meaningful reform has always been blocked by legislators with lame excuses.

This year’s bill is sponsored by Sen. Alice Forgy Kerr, a Lexington Republican, and co-sponsored by three Senate Democrats, Reginald Thomas of Lexington, Gerald Neal of Louisville and Dennis Parrett of Elizabethtown. Gov. Steve Beshear has supported the interest rate cap since 2009.

Tuesday’s rally is organized by the Kentucky Coalition for Responsible Lending, an impressive list of 89 organizations, including 33 faith groups. Members include statewide associations of Roman Catholics, Baptists, Jews, Presbyterians, Methodists, Episcopalians and Disciples of Christ.

Many of these faith groups disagree on other issues. But the Bible’s Old and New Testaments are clear about the sin of “usury” — charging excessive (or, according to some verses, any) interest on loans to people in need.

With this level of religious support, you would think the bill would be a cinch. But there is a higher power at work: the almighty dollar. Payday lenders spent more than $151,000 last year lobbying legislators and gave them tens of thousands of dollars in campaign contributions.

Legislators who have blocked this bill over the years have had many excuses: there is a demand for payday loans; people with bad credit have few alternatives; it’s free enterprise.

But the truth is there are alternatives, and poor people in the 18 states with double-digit interest caps have found them. Some credit unions, banks and community organizations have small loan programs for low-income people.

There could be more alternatives, too, if Congress would consider ideas such as allowing the Post Office to offer basic financial services, as is done in other countries, or giving poor people an advance on their earned income tax credit.

A bigger-picture solution, of course, would be to raise the minimum wage and rethink trickle-down economic policies that have decimated the middle class and widened the wealth gap to historic levels. But don’t hold your breath for that.

An additional excuse for legislative inaction this year is that Kentucky should wait to see what Congress and federal regulators do. The Consumer Finance Protection Bureau has begun a belated crackdown on payday lending practices.

But only Congress can cap rates at the federal level, and there is little chance of that from the business-friendly Republican majority. Rep. Andy Barr, a Lexington Republican, has been a shameless ally of payday lenders and other financial services companies, which contributed more than $700,000 to his re-election campaign.

I wish the consumer protection advocates and religious leaders good luck Tuesday, but they will need to make many more trips to Frankfort. I just hope they follow the money and keep a good list of which politicians are helping payday lenders prey on Kentucky’s poor and vulnerable — a list they will share widely at election time.

Honored to be honored at Arts Day in the General Assembly

January 28, 2014

14012ArtsDay0011Governor’s Arts Award winners stood in the back of the Senate Chamber (above) and the front of the House chamber to be honored by their legislators Tuesday during Arts Day in Kentucky. Photos by Tom Eblen

You know it’s a cold day in Frankfort when a journalist is applauded by the Kentucky General Assembly. But I had that honor today as one of nine recipients of the 2013 Governor’s Awards in the Arts.

Gov. Steve Beshear presented the awards in the Capitol rotunda last Oct. 29, and our legislators gave us shout-outs and certificates today on the House and Senate floors. I was humbled by the honor of this year’s Media Award. Thanks to the Kentucky Arts Council, Gov. Steve Beshear and to state legislators for all of their kind attention today.

The honorees are:

Milner Award
Oakley and Eva Farris

Artist Award
Laura Ross

Business Award
21c Museum Hotel

Community Arts Award
International Bluegrass Music Museum

Education Award
Lexington Children’s Theatre

Folk Heritage Award
Edward White

Government Award
Kentucky Artisan Center at Berea

Media Award
Tom Eblen

National Award
Actors Theatre of Louisville

14012ArtsDay0016The bluegrass band Kentucky Wild Horse performed at a reception in the Capitol for Arts Day. Left to right are: Don Rogers, Jessie Wells, Roddy Puckett (hidden) and John Harrod. 

Coal’s ‘sanctuary’ state? Kentucky always has been

February 26, 2011

Kentucky’s legislators have shown unusual willingness this year to waste their time and taxpayers’ money.

Keep teenagers in school? Protect the elderly in nursing homes? Create a more fair and adequate tax system? Can’t get it done. But lawmakers have plenty of time to push legislation that belabors the obvious.

Republicans want schools to set aside time for children to say the pledge of allegiance, which, by law, they already do. Democrats want a constitutional amendment to protect the right to hunt and fish, which has never been threatened.

Most telling of all, two lawmakers want to proclaim the right of Kentucky’s coal industry to do as it pleases. Kentuckians know the coal industry has always done that, with plenty of help from our politicians.

Rep. Jim Gooch, a Providence Democrat and climate-change denier, proposed legislation that would exempt coal mining from the Clean Water Act and other federal environmental regulations if the coal never leaves Kentucky.

Even more ridiculous is a Senate joint resolution calling for Kentucky to be a “sanctuary state” for the coal industry, freeing it from regulation by the U.S. Environmental Protection Agency. That proposal was made by Sen. Brandon Smith, a Hazard Republican who once managed a company the EPA went after for spilling 7,000 gallons of oil into a Laurel County creek.

Gooch and Smith say the coal industry should only be regulated by the state. But what they really want is no effective regulation at all. Too often, they amount to the same thing.

Consider this example from last week’s headlines: State regulators must submit a plan to the U.S. Office of Surface Mining by April 1 to raise the cash bonds coal companies must post to ensure that land is reclaimed after mining. In dozens of cases since 2007, companies shut down and left a mess that their bonds didn’t begin to cover. This time, as previously, state regulators are raising bonds only because federal regulators are forcing them to.

The coal industry is freaking out about federal regulation more than usual. That is because, for the first time since the Clinton and Carter administrations, the federal agencies charged with protecting the environment and regulating mine health and safety are being allowed and encouraged to do their jobs.

The proposed state legislation is especially embarrassing because Gooch and Smith are chairmen of the House and Senate committees that oversee Kentucky’s natural resources. But Steve Beshear, a usually sensible governor, managed to outdo them both in pandering to the coal industry. In his State of the Commonwealth address, Beshear colorfully called for less federal regulation of coal. “Get off our backs!” he shouted. “Get off our backs!”

I’m sure the coal barons loved Beshear’s performance. It reminded me of a previous generation of Southern governors, railing against the feds for insisting that their states acknowledge black citizens’ civil rights. It was Beshear’s George Wallace moment.

The truth is, we must mine and burn coal for years to come until sustainable energy technology is ready to replace it. But coal must be used responsibly, because we also need clean air, clean water and land that is capable of supporting life and an economy long after the coal is gone.

Not all coal companies are bad actors. But the industry as a whole has always cared more about big profits than protecting miners’ health or respecting the environment. Reform has never come without federal regulation, and the industry has usually fought it every step of the way.

Thankfully, the legislation proposed by Gooch and Smith won’t amount to much, except a waste of public time and money. States cannot just ignore federal law — that issue was settled pretty clearly by the Civil War.

The lawmakers say they want to “send a message” to Washington. They’re sending a message, all right. The message is that King Coal has the best Kentucky politicians money can buy, and the rest of us need the feds to protect us from them.

It’s past time to fix Kentucky’s tax structure

February 3, 2009

FRANKFORT — Kentucky legislators began their annual session Tuesday in a snowstorm, and that was the least of their worries.

Much of Kentucky is still reeling from last week’s ice storm, which many are calling the biggest and most costly natural disaster in modern state history.

Worse still, the nation’s biggest economic crisis since the Great Depression has helped blow a $456 million hole in the state budget that must be filled by June 30.

To paraphrase our new president, Kentucky’s financial challenges are serious, they are many and they are real. As I stopped to chat with legislator after legislator, many just shook their heads and said there are no easy answers.

“It’s going to be ugly,” said Rep. Reginald Meeks, a Louisville Democrat. “But I look at it as an opportunity for us to show some leadership. The question is, are we going to continue to play politics as usual or do the heavy lifting it takes to improve the lives of Kentuckians in the future? We play politics at our peril.”

Kentucky’s part-time legislators are just like the rest of us: They’re reluctant to do anything unpleasant today that can be put off until tomorrow. But options for further procrastination are quickly disappearing.

Lawmakers face two big challenges. First, they must plug the hole in this fiscal year’s budget, because the constitution requires the budget to be balanced. That’s likely to require a lot of painful cuts to education and social services, as well as some higher taxes, most likely on cigarettes and alcohol.

Gov. Steve Beshear faces an uphill battle on his proposal to raise the state cigarette tax by 70 cents, to $1 a pack, which would raise $81.5 million this year and $144 million next year. The proposal has broad support among the public, education leaders, health advocates and the Kentucky Chamber of Commerce.

Studies consistently show that higher cigarette taxes lead to fewer smokers, which leads to a healthier population and lower long-term health care costs. It’s an economic no-brainer.

Still, some lawmakers are nervous, especially now that congressional Democrats are talking about raising the federal cigarette tax. They fear that poor people addicted to cigarettes will buy them anyway, no matter what the tax is, and that will hurt families.

But at some point Kentucky lawmakers must decide what they value: Education and health or cheap smokes.

Once the immediate crisis has passed, lawmakers must find a long-term fix for a tax system that doesn’t work in a 21st-century economy. They’ve known it doesn’t work since at least 2001, when an independent economist predicted the rising budget deficits the state has seen since the mid-1990s.

What’s the long-term fix? There are two competing visions, neither of which is likely to get much of a hearing until the 2010 regular session or a special session on tax reform.

One is being pushed by Rep. Bill Farmer, a Lexington Republican, who also thinks state spending needs to be scaled back.

Farmer has proposed removing virtually all sales tax exemptions, except on food, and taxing services used by individuals (as opposed to businesses), with the exception of medical care. He thinks that would raise enough revenue to allow the sales tax to be cut from 6 percent to 5 percent — and allow the state income tax to be eliminated.

Critics of Farmer’s approach say a system based on sales taxes would be too “regressive,” meaning it would hit poor people harder than those with higher incomes.

“We don’t have a progressive income tax system,” Farmer counters, noting that Kentucky’s 1950s-era income tax rate is capped at 6 percent for people making more than $8,000 a year, which is virtually everyone.

Jim Wayne, a Louisville Democrat, has a different approach. For the fourth year in a row, he filed a bill Tuesday that would make the state income tax more progressive — and more like the federal income tax system.

Wayne’s plan would raise taxes slightly on people earning more than $75,000 a year and provide a 15 percent earned income tax credit for low-income people. It also would restore the tax on estates worth more than $1 million and add sales tax to services used by wealthy people, such as limousine rides, charter air flights and country club fees.

“This is not a dramatic shift in income tax rates,” Wayne said. But even after the earned income tax credit returned about $90 million to the “working poor” it would increase state revenues by $250 million a year, he said.

No matter what approach lawmakers take, it’s clear they need to do something — and soon. Any change will involve political risk. But, as Wayne said, “The riskiest position is to not fix the system.”