Ohio Wants to Cap Payday Lending Interest Rates
Will wrote a post last month about the fast growth (and enormous interest rates) of the payday lending industry in Ohio. The Buckeye State is getting hit especially hard by the economic downturn, with 1 in 10 residents on food stamps as of late March. But the government is preparing to fight back against the predatory payday lenders.
Fourteen senators, including six Republicans, have signed on to support a bill introduced yesterday that would cap payday-lending interest rates at 36 percent, down from the current 391 percent annual rate.
The bill, sponsored by Sen. Timothy J. Grendell, R-Chesterland, is a copy of House Bill 333, which is one of three payday lending bills under debate in a House committee. House Speaker Jon Husted, R-Kettering, has said he wants a payday bill passed by the end of next week.
If Grendell’s bill or House Bill 333 were to pass, the payday-lending industry says its more than 1,600 stores would be put out of business quickly. Under a 36-percent rate, they would be allowed to charge less than $1.50 per $100 borrowed on a two-week loan. The current rate is about $15.
The Senate is expected to let the House pass a bill before taking action on the issue.
Grendell said that while more Ohioans are using short-term, high-interest payday loans to meet their financial obligations, “some of the snares put in place by these businesses perpetuate debt, and as a result, many people are finding themselves overextended and unable to break free.”
The interest rates have to be capped to stop a lending cycle that preys on those who don’t have many other options. The industry could be exaggerating the number of operations that would shut down to try and sway the political opinion in their favor since Ohio definitely doesn’t need fewer jobs. But if they aren’t exaggerating, there could be thousands of people out of jobs (a low estimate of ten employees per establishment makes for 16,000 additional unemployed people in Ohio). Heads you lose, tails you lose in a different way.
Update (04/28): It looks like House Bill 333 is stuck in the pipeline. It has passed 3rd consideration and the next step is for it to go through conference committee.
Tags: Jon Husted, Ohio, payday lending, Timothy Grendell
April 16, 2008 at 9:45 am
Virginia’s going through something similar currently. I don’t want to sound insensitive to the jobs issue, because I am, but protecting payday lending jobs is like allowing any other loan shark–yeah, that person is working, but it’s pretty bad for the neighborhood.
Payday lenders have pulled out of other states that have put in place and enforced–that part is key–interest rate caps. But that might be because so many other states allow loans at ridiculous interest rates. Perhaps with an equal playing field they’d find a way to prosper anywhere.
The Center for Responsible Lending offers numerous studies about payday lending and other issues. Anything that does not involve trapped borrowers repeatedly “rolling over” loans, and paying extra service fees and interest, people taking out 5-20 loans a year, and exorbitant interest rates, threatens their model. As does having better social services offered to folks, an increase to the minimum wage, or a growing economy.
Payday lenders should be under the same interest rate guidelines as every other lender (between 24% and 42%, depending on the state), and if they can’t operate without special license to exploit those in need, then they should go out of business. Ohio, and other states, should encourage banks and credit unions to get into the business of giving smaller, short term loans, since there is a need, and they don’t need as high of a profit margin. Hopefully, an expansion there would help create more jobs in that industry.
But regardless, I think payday lenders hurt far more than 16000 people each year.
April 16, 2008 at 12:12 pm
I agree completely. The interest rates have to be capped and if 16,000 people lose their jobs…well, that’s less damaging than the alternative. But that is still going to be 16,000 more people out on the already fatally wounded Ohio job market. That is going to raise the unemployment rate and the number of people on food stamps. The system is already straining to keep up, as I said last month when I posted the information about the food banks that are running out of supplies.
My cousin’s wife works as a cashier at one of the payday lending places. She had been unemployed for about a year due to the awful job market in their area before she got hired there. Her husband had been working at one factory, got laid off and was unemployed for about six months before he found another factory job. But he had a severe allergic reaction to a chemical in the plant and had to quit. Right now, she’s the sole breadwinner in their family (that includes two kids). If she loses her job, they are going to be screwed.
Thus the “heads you lose, tails you lose in a different way” comment.
April 16, 2008 at 7:10 pm
Ohio, and other states, should encourage banks and credit unions to get into the business of giving smaller, short term loans, since there is a need, and they don’t need as high of a profit margin.
They’ve been trying to do that for years, but the banks generally won’t bite; the default risk is higher than they’d like. Also, some of them have direct or indirect (or really indirect) interests in the PDL’s themselves, meaning they can feed off the profits without taking the risk.
CU’s, on the other hand, are much more locally oriented, and at least a couple that I’m aware of do have alternatives to the payday loan death spiral.
April 18, 2008 at 6:03 am
so, did this bill pass? i thought they were to vote on it 4/17 at 8:30am
April 18, 2008 at 9:51 am
Hi, Debbie. It looks like they were just hearing testimony yesterday:
http://www.springfieldnewssun.com/hp/content/oh/story/news/local/2008/04/17/sns041808predatorylendingweb.html
April 18, 2008 at 6:29 pm
The interest rate cap is losing support:
http://www.dispatchpolitics.com/live/content/local_news/stories/2008/04/18/payday18.ART_ART_04-18-08_B2_I69VC5M.html?adsec=politics&sid=101
April 18, 2008 at 7:25 pm
will this site keep updated on what is going on with this bill? and when it does come time to vote on this bill will this site have information on it?
April 18, 2008 at 7:33 pm
We can do that, no problem.
April 30, 2008 at 5:10 pm
IT’S SO UNFAIR FOR ANYONE TO SAY THAT PAYDAY LENDER EMPLOYEES ARE NO DIFFERENT FROM A LOAN SHARK!! These bills are unfair and untruthful about payday lending, and APR should not even apply to a short-term loan for the simple fact that payday consumers know in advance they are paying $15 on every $100. What ever happened to our freedom to choose??? Why is nobody concerned about fees banks charge for an overdraft, or how much credit cards charge in interest, late fees and over credit fees?? Americans need to wake up and fight for their freedoms!!!
April 30, 2008 at 9:01 pm
IT’S SO UNFAIR FOR ANYONE TO SAY THAT PAYDAY LENDER EMPLOYEES ARE NO DIFFERENT FROM A LOAN SHARK!!
Contrary to popular belief, typing in all caps does not help you make your point more forcefully.
These bills are unfair and untruthful about payday lending, and APR should not even apply to a short-term loan for the simple fact that payday consumers know in advance they are paying $15 on every $100.
This makes no sense. APR shouldn’t “apply”? Are you saying it shouldn’t be calculated, or it shouldn’t be disclosed?
What ever happened to our freedom to choose???
Societies throughout history have prevented individuals from making choices harmful to themselves and to the society at large. Societies have also prevented individuals from offering those choices to others. Usury has often been among these; indeed, most religions, including Christianity, have historically condemned the practice of charging excessive interest.
Why is nobody concerned about fees banks charge for an overdraft, or how much credit cards charge in interest, late fees and over credit fees??
Plenty of people are concerned about those things too — it doesn’t mean that we aren’t also concerned about PDL’s.
April 30, 2008 at 9:23 pm
What ever happened to our freedom to choose???
Firstly, wow. I have never seen someone get so exercised in defense of payday loans.
Secondly, indeed. What did happen to our freedom to choose? Some people would argue that the lack of a living wage, lack of social safety net programs, lack of available medical insurance and affordable housing, among other things, combined with a lack of financial education have completely deprived people of the ‘freedom’ to choose, as they are left with little choice but to be trapped in the cycle of debt brought on by payday lenders.
May 1, 2008 at 6:16 am
Americans need to wake up and fight for their freedoms!!!
Well, I think we all agree on that point. The rest- not so much.
May 1, 2008 at 7:40 pm
so now it goes to the Senate, any idea when that will occure?
May 1, 2008 at 9:29 pm
Looks like it moves there next week.
May 3, 2008 at 2:58 am
I think that these business should be more regulated in all states.I don’t think people realize what they are getting into when they borrow from these places.They are like legal loan sharks for poor people.
May 3, 2008 at 7:11 am
I think that these business should be more regulated in all states.I don’t think people realize what they are getting into when they borrow from these places.They are like legal loan sharks for poor people.
I agree. Even if people do realize to some extent what they are getting into, these business by nature target those who don’t have many other options available to them.
May 10, 2008 at 2:34 pm
a lot of comercials supporting payday lending is creeping in on tv
May 14, 2008 at 5:12 am
The PDL industry has been my career and my only means of supporting my family over the past 3 years, as well as being a service I have utilized myself it has benefited many people in the community. I feel it is fair to imform all this industry IS NOT predatory! People should always inform themselves when any consumer product can directly affect their finances. I have helped people obtain access to short-term financial assistance as well as have obtained this same assistance w/ little more than my signature. When natural gas cost a ssi recipient 1/3 of their fixed income gasoline is close to $4.00 per gallon/ a gallon of milk is about the same and this person may also have to choose between purchasing vital medicines or paying their light bill what would the senate have their options be. I view the industry as a means to continue to provide for my and many other families. People from many walks of life such as a person on ssi to attornies and even doctors have utilized our services. Over 10,000.00 families in Ohio will be devistated if this bill is passed. Please know all the facts before deciding this industry is hurting our community.
May 14, 2008 at 11:59 am
Nicole, I did make the point in the post that if the bill passes and creates closures in the PDL industry, many more Ohio residents will be out of work. Which isn’t a good thing but neither is the 391% annual rate. The PDL industry could be exaggerating how many closures will happen because of the interest rate drop (which would actual bring in more customers and most likely offset some of the PDL money lost). But the state government should have a plan in place to prevent the workers from being left out in the cold.
No one is suggesting that all of the PDL organizations close shop. Ideally, the state government would have been paying attention when the PDL industry moved in and put a cap on the interest rates from the start. That would have saved a lot of time and trouble for everyone. But they didn’t.
I know many of people who have used PDL places to get them out of tough spots. We don’t think they should be banned from existence. The interest rates need to be controlled.
And if an industry can’t exist without a 391% annual rate, it is predatory.
May 14, 2008 at 12:45 pm
[...] wrote a piece last month about how government officials in Ohio were trying to get legislation on the books that [...]
May 17, 2008 at 5:33 am
Does anyone know when this bill will be signed by Strickland ?
May 19, 2008 at 4:30 pm
Does anyone know when this bill will be signed by Strickland ?
I’m not sure when it will be signed but it won’t be in action until August/September.
May 20, 2008 at 2:42 pm
i did hear that the bill was sitting on his desh, maybe he will change his mind
May 20, 2008 at 4:06 pm
He might refrain but I doubt it. He expressed his support while it was in the house and it had decent bipartisan support.