Sarah Byrnes of Americans for Fairness in Lending is an occasional guest contributor to Caveat Emptor.
Great news for consumers and advocates – citizens in Ohio and Arizona voted on Tuesday, November 4th to reject payday lending. Ballot measures proposed by the industry were soundly defeated in both states, showing that voters weren’t swayed by the industry’s deceptive advertising trying to convince them that payday lending isn’t predatory. You can read more about these battles in this previous post.
This brings the number of states where payday lending is illegal or unfeasible up to 15, plus the District of Columbia. Only 35 more to go!
The victories are particularly impressive because the grassroots campaigns fighting for consumers were grossly outspent by the industry. In Ohio, consumer advocates were outspent 60 to 1, and still won by a 2 to 1 margin. In Arizona they were outspent 90 to 1. Also, this is only the second time in the history of Ohio referenda that a “yes” vote won, and as the Center for Responsible Lending puts it, “victory in this bellwether state sends a strong message to policymakers everywhere.”
Congratulations Ohio and Arizona!
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“I find that the Cap dramatically reduced access to payday loans in Oregon, and that former payday borrowers responded by shifting into incomplete and plausibly inferior substitutes. Most substitution seems to occur through checking account overdrafts of various types and/or late bills. These alternative sources of liquidity can be quite costly in both direct terms (overdraft and late fees) and indirect terms (eventual loss of checking account, criminal charges, utility shutoff).” — Economist Jonathan Zinman
The passage of Issue 5 in Ohio is great news, but borrowers beware! The payday lending industry is already trying to circumvent Ohio’s new law and skirt it’s intent by offering what they call “micro loans” with a $15 origination plus 28% APR. House Bill 545 and state Issue 5 passed, affirming the 28% APR rate cap on payday loans. The 28% cap prevents hundreds of thousands of Ohioans from being caught in the never ending cycle of payday loan debt.
Ohio voters saw the payday loan product for what is was: a defective and predatory product designed to trap borrowers in debt! Let’s hope that the Ohio Attorney General’s Office and outside counsel ensure that lenders comply with the new law. The $15 origination fee is the same as 391% APR interest. Payday lenders are now trying to charge even MORE than that now on $100 loans! That was clearly not the intent of the law and it’s just one more example of why the industry can’t be trusted and why predatory lending must be stopped, state by state!