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.