Sarah Byrnes of Americans for Fairness in Lending is an occasional guest contributor to Caveat Emptor.
In addition to all the other excitement surrounding this election, Ohioans and Arizonans will get the chance to vote on payday loan protections on November 4. If you live in either of those states and you read this blog, you have probably already figured out the consumer-friendly position on those measures (Ohioans, vote “YES” on Issue 5; Arizonans, vote “NO” on Prop. 200).
FYI, if you are somehow still undecided about the presidential election, check out AFFIL’s Voter’s Guide which spells out the positions of Senators Obama and McCain on credit cards, mortgages and foreclosures, bankruptcy, and other issues.
If you’re not from Arizona or Ohio but know folks who are, please make sure they can see through all the advertising hype the industry has paid for, and let them know what the measures really mean. The Ohio Coalition for Responsible Lending and Arizonans for Responsible Lending have great websites on the ballot measures. Here’s a sample what they say:
Ohio: “If majority of Ohio voters vote no [on Issue 5], lenders will be permitted to continue charging 391 percent annual interest. If a majority of Ohio voters vote yes, interest rates will be capped at 28% APR. Outrageous fees and short repayment periods are what lead most borrowers into the DEBT TRAP.”
Arizona: “The so-called Payday Loan “Reform” Act would allow the payday lenders to bleed hard-working Arizonans with 400% interest rates. Forever. The payday lending industry doesn’t want you to know it, but when it comes to protecting your pocketbook at the ballot box this November – and TRULY cracking down on unscrupulous payday lenders – “no” will mean “yes.” A “NO” vote on the payday industry’s Prop 200 will mean “yes” to capping payday loans at 36% interest once and for all.”
Payday lending is currently illegal or not feasible in 14 states, though if the Ohio measure doesn’t pass, that number will drop to 13.
{ 2 trackbacks }
{ 9 comments… read them below or add one }
Vote Yes on Issue 5! It’s time to end the payday lending industry’s exemption from Ohio’s usury laws. The experiment with the finances of hardworking Ohioans has gone awry! Payday lenders charge 391% APR interest and trap hundreds of thousands of Ohioans in debt each year! The only way to end this predatory practice, cap interest rates at 28% APR and make lending fair for Ohioans is to vote YES on issue 5!
391% apr on a two week loan of 100.00=15.00 thats not that bad for someone with less than steller credit.APR shouldnt apply to anything thats not used over a year.APR on an atm machine would be around 1200%.It just doesnt fit this product.It comes down to this if you dont like payday loans….THEN DONT USE THEM….Freedom of finance is one of the most basic freedoms.Once we allow advocates and politicians to make those choices for us we are setting ourselves up for more and more government intrusion.VOTE NO ON ISSUE 5 PRESERVE CHOICE
Forget if you agree with pday loans or not- FOCUS on the fact that the Ohio General Assembly thinks they have the right to control what financial products are available to the citizens of Ohio. Big brother style.
Forget if you have used a PD loan or not– FOCUS on the fact that other consenting adults do and are capable of making their own decisions, based on their individiual situations. Who are we to say no, you can’t use that credit card? Or no you can’t use that bank?
Forget everything else — FOCUS on the fact that eliminating payday loans DOES NOT eliminate the need for short term financial options. I bet 99.9% of the OGA doesn’t have to worry about the day to day necessities the rest of are dealing with. They have insurance, pensions, well paying jobs.
Forget about the Pday loan argument — FOCUS on the controlling and spending of our household money by the state. Considering our current economic situation… I vote for less intrusion!! PLEASE let me manage my own darn $$ since the gov’t has shown they are not responsible, accountable or budget conscious. Ohio>> 60M in debt!!
Forget about the Pday loan side– FOCUS on what else the government is going to decide in the future (under the guise of “paternalism”) that we aren’t capable of handling as adults. Restricting how much can be spent on food? alcohol? cigarettes? housing? gambling? clothes?
FOCUS on the fact that the OGA is intruding on our personal financial decisions… where does it stop?? Why do they think they know better what will work for us than we do? We live it every day!!!
The Issue of 5 is waaaay bigger than PD Loans >> its about Financial Freedom of Choice, which I consider to be a BASIC FUNDAMENTAL RIGHT!
***NO on ISSUE 5!****
The state wants to tell you how much you can borrow, how often, and from whom. And they’ll put it all in a big database and keep records on your transactions. With the sorry condition of Ohio’s own finances, who are these people to be telling the rest of us that they need to be the ones making our financial decisions? Don’t allow gpvernmental paternalism to take over! And save 6,000 Ohio jobs by Voting NO on Issue 5!
There are stark similarities between subprime lending and payday lending. We saw what happened when too many people got trapped into subprime mortgage loans they had no way of ever repaying. There are times when the government has to step in and regulate a faulty product – payday loans are no different. 391% interest on a payday loan is just absurd. Sure, those taking out payday loans may be riskier borrowers, but I find it hard to believe the payday industry couldn’t make a sizeable profit charging a less usurious interest rate. Judging by the amount of money they’ve been pumping into Issue 5 and Prop 200, I’d say they’re doing pretty well for themselves.
When people in our communities get sucked into a debt cycle they have no way of ever getting out of, it hurts everyone – not just the debtors.
Payday loans are faulty product deserving of some common sense regulation. The free market works best when there is freedom and choice. The payday industry may shroud itself in the mantra of choice, but in reality the people trapped by payday loans have few choices. If they did, they’d probably looking for an alternative to a 391% interest loan.
Vote NO on Prop 200 if you live in AZ, and YES on Issue 5 if you live in OH. For more: http://www.yesonissue5.com and http://www.200isnoreform.com
Hey Noprop200AZ–
“Payday loans are faulty product deserving of some common sense regulation.” (1) PD loan are already regulated in Ohio. This new “law” limits PD lenders from operating and extending loans by SIGNIFICANTLY cutting their profits per loan. (more on that later)
“The free market works best when there is freedom and choice.” 2) ABSOLUTELY 100% agree with this statement! Financial Freedom of Choice is a BASIC FUNDAMENTAL RIGHT!
“The payday industry may shroud itself in the mantra of choice, but in reality the people trapped by payday loans have few choices. If they did, they’d probably looking for an alternative to a 391% interest loan. ” (3) Do you know why the typical PD customer makes the CHOICE to use our services? B/c we are cheaper than bouncing a check (released yesterday from BankRate.com– ” A bounced check costs an average of $28.95, up 2.5 percent from a year ago, according to the survey. (AP) WHAT?? How crazy is that??!)
Customers choose to borrow from a PD lender b/c we offer a better rate/fee. $15 per $100 borrowed. So if I have a $100 check that I know will bounce— do I decide to suck it up and pay my bank’s charge of $28.95 OR do I look at my options and decide to get a PD loan for almost exactly half my bounced check fee…. Hmmmm…. this is a tough one…. gee>>> I think I’ll GO WITH THE PD LOAN!!!!!
Banks are notorious for their EXPENSIVE hidden charges, late fees, bounced check fees, daily fees, minimum balance fees, etc. And the average profit margin for the top 10 banks in the US are 18.5% compared to the top 5 payday lending companies in the country who are at 6.6%!! (PDF- source) And oh IHOP is at 12.6%. They are sure making a killing off our eggs and pancakes!! So really now, who exactly is profiting more?
But why haven’t banks and credit unions stepped up to write a similiar PD loan product?? Let’s look at why….
Consider the difficulties payday lenders face to stay in business under a law that limits their interest rates to 1.08% for a two-week loan. That is, if you take the new 28% yearly interest rate and divide it by 26, you get 1.08%, which is what lenders will be allowed to charge per every $100 they loan. Under the old Ohio law, they could charge up to $15 per $100 borrowed, or 15%.
So….. in case you are missing the point….
28% on a SHORT TERM LOAN IS NOT PROFITABLE!!!! For any business!
And oh yeah it’s not 391%. PD loans are 2 week loans, not 52+ week loans. Equating them with an annual loan product is absurd. If you rent a car at Hertz for 3 days, you pay $29.99/day…. Yet NO ONE computes what that cost would be annually b/c it’s only intended to be for a SHORT TERM!!
VOTE NO on ISSUE 5 in OHIO!!
Yes on Issue 5! The pay day loan sharks don’t care about the people they lend to, only their profits. They need to be regulated so they can’t prey on people who can’t afford their loans. I hope we pass Issue 5 here in Ohio.
YesonIssue5—
First— PD lenders are CURRENTLY regulated in Ohio already. We are NOT operating illegally or in dark alley. This is not the Sopranos for cripes sake!!!!
Second “…so they can’t prey on people who can’t afford their loans…” So let me get this straight…. someone walks in to a PD store and wants to borrow $$, is approved for a specific amount based on their income level, signs a contract stating the terms and due date and is given $$ on the spot. So what’s wrong with this picture?? What exactly are you stating? Either that the citizens of Ohio are stupid or PD lenders just throw money out the door. BOTH ARE WRONG!
Third- “The pay day loan sharks don’t care about the people they lend to, only their profits.” REALLY? Hmm, yeah again you are wrong!! We are ACTIVELY involved in our communities (blood drives, food drives, toys for tots, animal shelters/adoption days, sponsorship of local schools– (books, supplies, tutoring, clothes) , voter registration, Juvenile Diabetes Research, Breast Cancer Month, Downs Syndrome Walk…. and thats just a few!!
As for profits…. PD lenders earn less than 3x what a traditional banking institution does. Top 5 PD loan companies earn 6% vs top 10 banks at 18%!!! So who is really looking at getting rich off their profits?? Not PD lenders!!
As a citizen of Ohio 1st and an employee of a PD 2nd, I sincerely hope that my fellow Ohioans understand what is at stake here on Issue 5!! Financial freedom is having options available and making the *best choice* for your individual needs. It does not mean eliminating viable options for adults, especially when the economy is in such a horrible state.
VOTE NO on 5
First let me thank Casey for her enthusiastic advocation for the payday loan industry, your explanations are very thorough and informative. Darren also makes an excellent point in that consumers will be losing financial freedom if Issue 5 is passed. Adults should be given all of the information they need and then allowed to make the decision about what financial products work best for their families and their individual situations.
CFSA supports regulations that ensure the product is used responsibly and is doing its part to encourage this. We want customers to use payday advances wisely and we want the service to be a solution, not a problem, for individuals who need low-dollar, short-term credit.
To that end, CFSA has made significant changes to the Best Practices, including: displaying fees in large font on posters in all store locations and on their web sites; offering payday loan customers the option of an Extended Payment Plan if they cannot repay their loan when due; placing a “Customer Notice” on all CFSA member-company advertising and marketing materials; banning advertising that promotes the payday advance service for frivolous purposes; requiring CFSA members to prominently display the CFSA seal to help customers identify responsible providers that adhere to these and other CFSA Best Practices.
Finally, in response to “YesOnIssue5,” you could not be more wrong about payday lenders only caring about their profits, and caring nothing about its customers. With regard to our customers, all reputable payday lenders have underwriting criteria, in addition to the requirements of a steady income and checking account. We are certainly not trying to scam consumers so they can make a profit. However, like any business, there is a need for some operating margin to stay afloat. In fact, the FDIC’s Center for Financial Research study, “Payday Lending: Do the Costs Justify the Price?” found that “operating costs lie in the range of [payday] advance fees, suggesting that payday loans may not necessarily yield extraordinary profits.”