Lawmaker urges limit on check cashers
By Amy Baldwin
Herald-Leader Business Writer
FRANKFORT -- Banks, pawn shops, finance companies and other lending institutions must obey state usury laws. So should check-cashing businesses, a Kentucky legislator told the General Assembly's Interim Committee on Banking and Insurance yesterday.
"Every place you go to in Kentucky to get money is under usury laws except these people," said Rep. Jack Coleman, D-Burgin.
Coleman presented a bill he drafted to limit the amount that check-cashing business can advance and the fees they can charge. The proposal calls for a 5 percent cap on fees every two weeks and a $250 limit per transaction. There currently are no limits on either.
Check cashers, or deferred-deposit businesses as they are formally called, charge a fee to advance money on personal checks. In turn, the business agrees to hold a client's check for up to two weeks.
The fee is not considered interest under state law. After two weeks, the customer must repay the amount advanced or pay another fee. The scenario can continue indefinitely, costing a consumer thousands of dollars for an advance of a hundred.
That worries Anderson County Attorney Betty Springate, who helped Coleman draft his proposal.
Check-cashing customers "go from one to another to pay the last one and finally get in so deep that they are forced into bankruptcy court," she told the committee.
That rarely happens, said David Davis, president of the Kentucky Deferred Deposit Association.
Information gathered from association members indicates the average salary of a check-cashing client is $25,000 to $30,000, Davis said. Most do not roll the debt over as Springate described, he said.
The association's attorney, Steve Beshear, argued against the legislature regulating the check-cashing business.
"I think most folks in the General Assembly and state government feel that government's purpose is to make sure folks know what they're doing ... ," Beshear said. "... If you decide to just protect everybody and make the decision for them, then certainly you can wipe out this industry."
Sen. Dan Seum, D-Louisville, committee co-chairman, said lawmakers can't protect consumers from their worst enemies -- themselves. To make his point, he spoke of a "big time gambler" he knows who likes to bet at the racetrack.
"I guess there is nobody out there in front of the racetrack with a ball bat, dragging (him) in there, making him lose his money," Seum said. "I am concerned as to how this is any different than that."
Rep. Ron Crimm, R-Louisville, asked whether check-cashing fees are higher than credit-card interest rates, which approach an annual percentage rate of 21 percent.
"I understand what you are saying, this is tremendously high, but there are a lot of interest rates in this world that are high," he said.
Check-cashing fees are quite a bit higher than credit-card rates. Check cashers in the Lexington area, who charge $20 to $30 on a $100 advance every two weeks, are in essence charging 520 percent and 780 percent interest.
Sen. Charlie Borders, R-Russell, said he "wholeheartedly" supports a curb on check-cashing fees.
"One thing's worse than needing money, and that would be to need money and have it loaned to you at the rate of extortion," he said.
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