Ohio Issue 5 – Payday Loans

I don’t usually get into political crap, but this issue just really annoys me.  It’s a little confusing and misleading… I can’t see how it could possibly be voted down.

From http://ballotpedia.org

The Ohio Payday Loan Referendum is a veto referendum proposed in order to stop House Bill 545 that would cap the Ohio payday loan industry’s interest rate at 28%. The previous cap was 391% ($15 per $100 on a two-week loan).

HB 545 was approved by state lawmakers and the governor in late spring. Opponents of the new restrictions (mostly the payday lending industry) quickly sprang into action to try to overturn it using Ohio’s veto referendum process.

Opponents of HB 545 are asking for only a partial repeal of House Bill 545; the portion that eliminates the current payday interest rates.

Payday lenders have until September 1 to collect the needed 241,365 valid signatures to qualify for the November 4, 2008 ballot in Ohio.

The payday loan industry is dumping millions of dollars into a campaign against this issue.  Well of course they are, if isssue 5 passes, they’ll lose millions.  They’re using every angle:  Financial freedom, privacy, keep jobs in Ohio, big brother government.  Their tactics are about as sleazy as their industry.  Paying homeless people to get signatures, deceased people’s signatures showing up, misleading statements to people signing the petition.  If you’ve seen any of their commercials on TV, they’re disgusting.  So here’s the arguments they give on their website:

1 – To Protect Over 6,000 Jobs in Ohio.
Really?!  What jobs?!  The only jobs I can see threatened are employees of payday loan shops.  The only way those people lose their jobs is if the payday loan shops get rid of them.  This issue isn’t forcing them to close their stores, it’s forcing them to stop raping people who use their service.

2 – To Preserve Financial Options for All Ohioians.
Again, Issue 5 is not banning payday loans.

3 – To Keep Ohioans’ Private Information Out of Intrusive Government Database.
Ok, this sounds really scary and their ads play on this – “Big brother is watching you and keeping track of your information!”  The big scary government database is this:  part of the bill only allows people to use payday loans 4 times a year… the database is used to keep track of that.  Have you bought any medication containing ephedrine or pseudoephedrine lately?  They scan your ID and make you sign a log because they’re limiting how much you can buy in a 30 day period.  No one against that measure brought up all these ‘privacy’ issues.  They’re keeping track of how many times you’ve used the service… that’s it.

4 – Because  Short-Term Payday Loans are Cheaper than Alternatives like Bank Overdraft Fees.
It may be cheaper than overdraft fees, but I don’t know about ‘other alternatives’.  For a two week loan, the payday places charge $15 for every $100 borrowed.  This translates into something like a 391% APR.  Yes, three-hundred and ninety-one percent.  As an aside, one of the other things the bill is doing is extended the payback period to 30 days instead of two weeks.  Here’s my main problem with these places – if I’m $100 behind on my bills this week and use a payday loan… aren’t I going to be $115 behind next time?!  $130 the time after that… $145 the time after that.  So cheaper than overdraft fees…well sure.  But bouncing a check should be an accident, not a short-term loan.  Do people intentionally write a bad check!?  I hope not, because it doesn’t actually pay your bill and it results in fees.  So I don’t think you can even compare the two.

5 – Issue 5 is Supported by Out-of-State Special Interest Groups
Ha!  It’s also opposed by ‘out-of-state special interest groups’  People in glass houses…

COLUMBUS, Ohio (AP) – Ohio has become the epicenter of a national debate on payday lending restrictions.

The payday loan industry is trying to get issues on the November ballot in Ohio and Arizona that would overturn restrictions on the interest rates it can charge.

Uriah King, a policy associate at the industry-critic Center for Responsible Lending, says Ohio’s size and status as a battleground state make it the center of attention for those watching the payday industry.

Fifteen states and the District of Columbia have passed laws restricting the industry, while four other states are watching Ohio to see what happens.

The industry is spending millions of dollars to gather signatures and run television ads to keep restrictions from taking effect.

So yeah, people on both sides from all over the country are active in this one.  What cracks me up is that there’s really no opposing industry – no one fighting these payday loan predators has a financial reason for doing so. It’s mainly non-profit organizations like Center for Responsible Lending and the Vote Yes on Issue 5 Committee
Guess you know how I’m voting on this issue.  Anyone have a compelling argument for the other side?

3 Responses to “Ohio Issue 5 – Payday Loans”

  1. mindy Says:

    I think this is long over due. When I was in a communications class a girl who worked for one of these places described in detail how the system works and highly discouraged anyone from going to one of these places. She also said that while they (the lenders) ask borrowers if they are borrowing from other lenders – the lenders don’t really care if you are or not. It’s actually better business for the lender if you are bouncing back and forth between lenders.

  2. Katt Says:

    They’re all a bunch of pansy arses…speaking of which, my pansy arse should have spent another week in Paris….je suis fatigue

  3. Michael Says:

    Issue 5, just for clarification, was most certainly an effective ban on payday loans. It’s simple math: if you limit a payday lender to 28% APR, that translates to 1.08% financing over a two week period (divide the annual rate by 26). If I’m a lender, and somebody comes in for $100 cash, there is no financial incentive for me to give it to them if I’m only gonna make $1.08 on the loan. That’s not enough for me to stay in business. I can’t pay rent, I can’t pay bills, I can’t pay employees – I can’t even pay taxes!

    Furrthermore, we didn’t even take into account the fact that 6-7% of these loans end up never getting paid back. The reason payday lending exists in the first place is because there is a segment of the population that is a bad credit risk. So yes; capping rates at 28% forces lenders out of business, whether for better or for worse, and eliminates the best option for a person with bad credit who needs quick cash.

    Would you loan a poor person $100, if you stood to make a little over a dollar on the deal, and only after two weeks? What if your experience had taught you that there was a 6% chance that this person would never settle up? Anybody will point out that you need to demand at least 6% just to break even, and much more to make it worth your while.

    And yes, there is a trend in states which have passed similar laws for people to start intentionally bouncing checks. I’ve done it myself, even when payday lenders were still IN business, because I didn’t qualify for a payday loan. I needed cash to fix my car so that I could continue to work, so I intentionally bounced a check. I paid the fee out of my next paycheck; no hard feelings.

    You are correct in your assertion that it doesn’t make sense to take out a loan to pay bills when your bills will be the same next month. This logic is true for ANY loan, no matter how low the interest rate is. Payday loans are especially helpful for people that need money in an emergency situation. Do some people get stuck in a cycle? Of course they do. Any kind of credit line brings risk. Would you outlaw all loans?

    I do agree with you, however, that the marketing groups representing the ‘vote no’ campaigns were using very dirty tactics. But that doesn’t mean that you and I, as intelligent voters, can’t make a reasonable decision about how to vote.

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