Ohio voters will have no fewer than five statewide ballot measures to consider when they step into the voting booth tomorrow. While Issue 6's proposal of a $600 million casino project has become the most controversial (and costly) measure at this point, we still shouldn't overlook Issue 5 and its implications for payday lending reform. Although it has been less than six months since Governor Strickland signed House Bill 545, a rejection of Issue 5 will repeal the bill's 28 percent interest-rate cap. Consequently, payday lenders would once again be able to charge up to 391 percent interest on short-term loans.
Payday lenders and their supporters that are on the "no" side are primarily relying upon three arguments: 1) payday loans are the only viable option for consumers in need of short-term financing; 2) reform represents unnecessary government interference due to the creation of a database that records loan transactions; and 3) reform will cause lenders to shut their doors, leading to the loss of some 6,000 jobs statewide. As newspaper editorials and columnists around the state have documented, all of these arguments are (perhaps unsurprisingly) disingenuous:
--Cheryl Harris of the Cleveland Plain Dealer notes that the lenders' argument about viable financial options is really an effort to avoid describing how their loans actually work. The truth is that there are short-term alternatives--credit cards, bank and credit union loans, overdraft protection for checking accounts, credit counseling services--that are all better options than pre-reform payday loans. This comparison chart demonstrates why.
--Syndicated columnist Thomas Suddes dismisses the complaint over government interference by writing that "lenders themselves mishandle such data. Cincinnati-based Check 'n Go paid the state of Texas $220,000 in May because Check 'n Go 'exposed customers to indetify-theft [sic] by discarding records in easily accessible trash cans'--records such as borrowers' names, addresses, Social Security and driver's license numbers, and checking account information. It takes a lot to disgust Congress, but payday lenders did."
--Are payday lenders crying wolf when it comes to their claims that 6,000 jobs--their entire in-state workforce--will disappear. If Issue 5 passes, there is a distinct possibility that the industry will have to eliminate some jobs. But it's incredibly unlikely that the number will reach 6,000 because, according to Suddes and the Columbus Dispatch, over 70 percent of the state's payday lenders--1,149 out of around 1,600--have already applied for licenses as small-loans and/or second mortgage operators. Contra their own claims, they won't be vanishing from the state anytime soon.
When we add up the facts, the Dayton Daily News is correct to point out that what payday lenders are arguing is, in a word, "baloney."
UPDATE: Issue 5 has passed, with 63 percent of voters in favor.