Thursday, May 8, 2008

Ohio House Bill 545

On May 1, 2008, the Ohio House passed House Bill 545, aimed at reducing the interest charged by payday loan organizations. According to the Dayton Business Journal, this Bill “would cap annual percentage rates on payday loans at 28 percent, extend the repayment period to 31 days from 14 days and cut the maximum loan amount to $500 from $800.” Previously, these companies could charge $15.00 per $100.00 loaned over a fourteen-day period, which calculates to a 391 percent interest rate.

Those supporting this Bill insist that this measure is aimed at helping people who become trapped in a “cycle of debt”. By lowering the interest rate, limiting the number of loans a person may take per month and limiting loan amounts, the bill attempts to rectify the problem of those who “get in over their head”. Also, by preventing these customers from taking out new loans to pay back old debt, this Bill is seen as a measure to make sure borrowers are not stuck in perpetual debt.

Statistics show that over “300,000 Ohioans are trapped in debt” and “2,460 people in Ross County were indebted to payday lenders’ in 2006. Prior to the passage of this Bill, these payday lenders were given prior warning to change their practices, and failed to comply.

As would be expected, these payday lending companies are fighting the passage of this measure. In Chillicothe alone, at least thirty people would be put out of work due to many of these locations failing to remain profitable and ultimately close. It is expected that this Bill would have similar effects on other cities in Ohio, causing many throughout the state to become jobless.

Aside from the argument of the growing number of unemployed, the payday lending organizations argue that they serve a beneficial purpose in providing loans to those when nobody else will provide needed funds in emergency situations. They claim that as long as borrowers are responsible, they will not fall into the “cycle of debt” that the House uses as justification for passage of the Bill.

Public policy would seem to dictate that the interest rates being charged are usurious and should be limited. Also in the favor of the passage of such a Bill is the fact that such payday lending organizations seem to allow for easier access to loans which, combined with the current rates they charge, appears to contribute to the growing debt within the state and country.

I admit that my initial impression towards this legislation was nothing but positive, as I have seen people get in trouble by overusing these services. However, to view the arguments of these organizations, it does seem that they do provide some valuable services when used correctly. In the emergency situations that they state they are able to assist with, when nobody else can, a valid point is made for how they can be used properly.

The problem then seems to become: How do we stop people from overusing these services and overextending themselves? Perhaps an even more important question related to this may be: Is it the government’s job to ensure that these services are not abused? Answering the second question first, it would seem that the government does have some part to play in ensuring that citizens do not end up in unemployment through over-extending themselves. And, the number of people they protect in doing this may certainly outweigh the number of people they put out of jobs with this legislation. Still, what amounts to “baby-sitting” of those who can’t use the system properly seems to put the government in a role it was not necessarily meant to fill. It is comparable to trying to stop people from spending their entire paycheck (money in hand) instead of saving some for a “rainy day”, which I do not feel anybody would argue is the job of the state or federal government. Even if House Bill 545 is enacted as passed by the House, people will find ways to spend their money in ways that some may claim are irresponsible and against public policy, or will find people “off the record” who may provide needed funds at even higher rates (answering the first question above that there really is no way to prevent people from finding ways to spend money they don’t have). By attempting to prevent overuse by those who perhaps will find other ways to overextend themselves, it seems that the government is punishing those people who use the payday lending services in the responsible way they were intended to operate.


tina said...

I am an employee of a payday lending company in Cambridge Ohio. Thank you for looking at this situation fair. The percentage rate of 391% is an annual rate. I think we need to also look at what banks charge if you have a bounced check fee, vs the fee we charge. If payday lending is used as it was designed, it is a great avenue for consumers needing a small loan. Just like Welfare - the design of it in the beginning was fantastic, however now we have people and literally generations who abuse this - and the government allows it. When is it the governments position to tell the people how to manage thier finances? An estimated 6,000 Ohioans could lose thier job because of this bill that was passed - who wins? If I see my customers falling into a cycle I personally counsel them and try to get them to go $50 lower each advance - and they are grateful, not all take my advice and nor do they need to... maybe all payday lenders do not do this, but I can put my head on my pillow and rest each night knowing I have helped someone out that day, just 12 short years ago when Payday Lending was introduced to Ohio the same legislators who are closing the payday advance centers today, almost unanimously voted in favor of them... now they say we prey on the elderly and the poor.... 3.5% of Ohio's Payday customers are age 65 and older. But lets make sure we really add to the lottery and get casino's in because Lord knows that doesnt attract the poor and elderly!

Anonymous said...

I am a manager at a payday advance in ohio and i don't think that it is fair that the government is telling people how to spend their hard earned money. Everyone pays taxes that is employed the decision to spend their paycheck the way they need to is theirs not anyone elses, this is really going to hurt alot of people i know the customers i have when they dont get to loan again are going to lose alot their house , car they are going to be hurting is the government going to put them up , no the bankruptcy courts are going to be busy as ever. this is not fair i beleive that we are becoming a communist country when the freedom of how we spend our paychecks, income is taken away from us. the USA used to be a freedom country with the prices of gas and the raise in food and now the politicians taking away the lending instututions , how are people going to survive, they wont be able to this is going to cause a depression in state of ohio.

Anonymous said...

I am a frequent customer at no less than three payday advance centers. I work a full-time job with great benefits, rent a townhome, and have a car. Still, I have been stuck in the cycle of addiction to these places for over five years and I need to get out. At one point in time, I owed almost $1300 to payday advance places, which at the time was equivalent to my entire monthly income. Only by borrowing the money from family was I able to stop the cycle...for the time being. But (you guessed it)...I eventually went back.

Not only are payday advance centers set up to ALLOW people to borrow from other payroll advance centers, they almost FORCE you to take out more than one loan at a time, especially if you are using a large loan such as $400 or $500, because of the exorbitant fees. The owners of these franchises are making HUGE money, while they pay their employees next to nothing and screw the consumer in the bargain. I've currently got my payday advance loans down to $300, which I plan on paying off for good in the next four weeks. I know this is going to hurt when it is no longer an option for me financially, but at one time I survived without payroll advance and I will again. When I think of all the thousands of dollars in payroll fees I've pissed away in the last five years, I want to cry. Good riddance to these blood-sucking companies and the crappy values they teach about fiscal responsibility.

Anonymous said...

I dont think anyone will read this, but I think tina brought up a ton of good points. Specifically, casinos. Changed my mind on the issue.