Sunday, March 12, 2006

Kentucky Bank Bill May Have Negative Effects on Payday Loan Precautions

By J.J. Cameron
Payday Loan Writer

The Courier-Journal reports that a bill that Kentucky-chartered banks say would make them more competitive with national banks has drawn fire from consumer advocates, who say it would roll back protections against cash loans.

The measure has passed the Senate and cleared the House Banking and Insurance Committee. It awaits a vote in the House.

Senate Bill 45 would make state-chartered banks exempt from any Kentucky laws or regulations that don't apply to national banks. About 45 national banks operate in Kentucky along with about 165 state-chartered banks.

On one hand, the Kentucky Bankers Association says the measure is needed to help state banks compete for second-mortgage loans. The association says national banks have lower costs for those loans because they are exempt from some Kentucky lending restrictions.

"We seek only to level the playing field," Ballard Cassady, president and chief executive officer of the association, told the committee this month.

Cassady said national banks "can ignore the peculiarities of Kentucky's state laws, and our state banks are left at a competitive disadvantage because they cannot." He said federal banking laws offer plenty of consumer protections.
On the other financial hand, consumer advocates, including retiree organization AARP and the state attorney general's office, said the broadly worded measure would affect more than mortgage-loan costs.

They said it would shield banks from Kentucky laws regulating usury and payday loans and from the High Cost Loan Act of 2003, meant to protect consumers against predatory home loans.

"This bill would de-level the playing field for consumers," Anne Marie Regan, senior staff attorney for the Offices of Kentucky Legal Services Programs, told the committee March 1.

Rep. Rob Wilkey, D-Scottsville, filed amendments to the bill this week specifying that it would not exempt state banks from Kentucky consumer-protection laws or from examinations by state banking regulators.

Rep. Darryl Owens, D-Louisville, filed an amendment yesterday that would have the same effect.

The House could act on those amendments and vote on the bill next week. Regan said SB 45 as originally worded would remove state-chartered banks from oversight by the state Office of Financial Institutions.

But Mark York, spokesman for the Environmental and Public Protection Cabinet, which includes the Office of Financial Institutions, said that's not the case.

"The legislation in no way prevents the state from dealing with predatory lending practices," he said. "We'll still have the ability to do inspections and examinations" of banks.

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