Ohio Senate Votes on Payday Lending Interest Cap Bill Today
Update: The Ohio State Senate has passed HB 545 by a vote of 29-4.
The Latest:
The Ohio state Senate Finance Committee approved House Bill 545 this morning. If the Senate approves it this afternoon (and they are expected to), it will move back to the House for final concurrence. Gov. Ted Strickland has already come out in favor of the bill.
Background Info:
I wrote a piece last month about how government officials in Ohio were trying to get legislation on the books that capped the interest rates the state’s payday lending industry could charge consumers. Currently, the interest rate works out to be 391% annual rate. A bill sponsored by Sen. Timothy J. Grendell proposed a 36% interest rate cap.
The bill recently passed through the Ohio House with a bipartisan vote of 69-26. What’s really surprising is that the bill places the interest rate cap at 28%- lower than originally proposed. The bill also seeks to limit the number of loans a borrower can take out in a year to four (to prevent an endless cycle of borrowing for repayment), ban online payday lending, create a PDL database and encourage traditional lenders to enter into the short term, small loan game. The payday lenders weren’t happy about that decision.
Payday loan industry officials have said the new rate cap will force them out of business in Ohio, a pattern seen in places like Oregon and North Carolina where rate caps sent payday lenders hightailing.
“You have eliminated a product that people need, and you have eliminated 6,000 jobs,” Darryl Dever, chief Ohio payday loan industry lobbyist, told lawmakers during committee testimony Wednesday morning.
The job loss aspect is really unfortunate since many people (including a member of my family) support themselves or their family by working at a PDL office. And the Ohio economy, already close to deadlining in some areas, is going to be a hard place to find a new job. But the government isn’t forcing the PDL industry to shut down. The 28% interest rate is likely to bring in more customers and could offset some of their losses. But if an industry can’t survive without charging a 391% annual rate interest it is proof of just how predatory they truly are.
As the bill moved into the Senate, the payday lenders tried to fight back harder. Television ads were run, lobbyists were hired and protests were mounted. The PDL industry tried to propose alternative changes to the industry- many of which were nearly identical to the system that is currently in operation. But the politicians weren’t biting. On Monday, the top two Republicans on the Senate Finance Committee rejected the latest PDL alternative and pushed the bill forward for vote.
Note to readers: I’m going to start blocking comments for this post that seem like they’re from PDL industry trolls. I’ve let a few through on good faith that could have just been PDL employees voicing their concern with losing their jobs. And if you are one of those people, feel free to comment. But it is getting easier to tell who is a troll and who isn’t since they all keep saying exactly the same thing.
Tags: House Bill 545, Ohio, payday lending
May 14, 2008 at 3:05 pm
I work at Cash-Land here in Ohio, and everyone who has written an article like this doesn’t truly understand what it is we do. yeah, 391% APR sounds horrific, but NO ONE has a loan for a year.. it is a maximum of 30 days, by ohio law. We charge $15 for every hundred, up to $500, and after that, the fees are less. I thought this was a nice, informative article, until I get to the line “But if an industry can’t survive without charging a 391% annual rate interest it is proof of just how predatory they truly are.”
We do NOT go out there and prey on people with bad or no credit. They come to us because they know we can help them out of a tight situation. MANY of our customers come to us in an emergency, and are relieved to know they can get the money they need THAT day. How long does it take to get a loan at the bank? When you have a sick child that needs immediate care, are you really going to take the time to go to your bank for a loan? Please don’t look at us like WE’RE the reason the economy is so terrible. We pump millions of dollars into the ohio economy, and many of our customers are very grateful to have us.
Thanks.
May 14, 2008 at 3:23 pm
Hi Heather,
I am actually very familiar with how PDL places work but, yes, things tend to get oversimplified in a blog post. No- people do not get a single loan for an entire year from a PDL establishment. But it is easy for them to get sucked into the borrowing and repayment cycle for a year.
The PDL industry can still be predatory even though they don’t “go out there and prey on people with bad or no credit”. The high interest rate (and it is very high in your state) combined with the lack of a cap on how many loans the people can take out and the fact that alternatives are not available (which isn’t PDL’s fault) can very easily cause a downward spiral for the borrower that can be difficult to pull out of.
The bill is making it easier for traditional lenders (banks) to offer low amount, short term loans with a low interest rate to put more options out there for consumers.
No one is suggesting that the Payday Lenders pack up their bags and leave. They just need to meet certain standards if they want to stay (as do businesses in almost every other industry). And no one said that the PDL industry caused the economic situation in Ohio.
If there wasn’t a problem with the Ohio PDL industry, the bill would not be getting such strong bipartisan support. And this isn’t the first state (nor will it be the last) to implement such an interest rate cap.
May 14, 2008 at 6:58 pm
I work at Fast Cash in Ohio. I listened today as a Senator spoke explaining the good this Bill was for the people of Ohio. I beg to differ. I see all different kinds of Payday Lenders in our store. From every aspect of employment. Senior citizens asked me, “what are we to do now?” I don’t have an answer. There is good and bad to everything in life and business. But the main thing that people are forgetting is that over 6000 people will be losing possible jobs. Can Ohio really afford unemployment like that?? It’s hard enough with soaring gas prices, groceries being more expensive than they used to, but to willingly add to Ohio’s job loss is UNREAL. Wonder if the Senator, Congressmen, and the Govenor would live as most ordinary people have to, let alone face unemployment. Some of us are single moms, (not by our choice I might add) trying to raise our family by working full time and not using the system to survive.
May 14, 2008 at 7:31 pm
The bill does not say that any payday lender has to close.
If they do, it is an independent decision of the business. What the government is doing is putting a regulation in place that should have existed from the start. 28% is actually still a moderately high interest rate on a loan. The PDL businesses will still have an income. With a lowered interest rate, more customers would come in for loans and probably offset the financial losses caused by the bill. But whether payday lenders are willing to wait it out and see is their decision to make.
The economic situation in Ohio is dismal and things do need to be done to improve that: tax breaks to business already in state to stay, tax incentives for businesses that will move in, improvement and increase of government aid programs, etc. But the government can’t allow industries to run amok just for the sake of employment. That will hurt everyone in the state in the long run.
May 14, 2008 at 10:12 pm
Payday Lenders are designed to offer small loans that banks will not offer. They are not designed to offer long term loans nor do they want to offer these type loans. Who do you think is behind getting PDL’s out of Ohio? Banks can’t wait to get PDL’s out of Ohio. Competition is bad for banks. Banks are hurting because people have chosen to get their money easier and cheaper at a PDL then they can at a Bank. Have you ever tried to get a small loan at a bank? It’s impossible because there is no profit in it for the banks. Payday lenders were created to offer these services because banks wouldn’t offer them. Now that PDL’s are out of the picture, what is going to happen? Bank fees will go way up. Now to get a $100.00 overdraft out of your account the bank will charge you a onetime fee of $20.00 + interest. It’s a fee they will tell you and not interest. Get 300.00 and it will cost you $60.00+interest.
People seem to be worried about the initial 6000 jobs but they forget about the lost jobs that people who support the PDL’s will also lose. According to leading economists you need to figure 3 jobs for each PDL job lost. All together Ohio will probably lose 18,000 jobs. Your taxes are about to go up to pay for all the bankruptcies that are about to happen. The Banks are not going to help so you are on your own. That giant sucking sound you hear is your money leaving your state and being invested in other states that still allow people to manage their own money.
And another thing; Thanks to the Government of Ohio for proving something the rest of the nation already knew. The people in Ohio are not to be trusted to think for themselves because apparently they are too STUPID to manage THEIR OWN money. Maybe the State of Ohio should just collect everyone’s pay, tell them how much to spend on living and then give them a small allowance to spend on bowling and beer.
May 15, 2008 at 8:22 am
I wonder how many of you actually were at the Ohio Statehouse or watched the session on TV/internet. If you took the time to listen to the senators, then you might understand why the committee voted 13-0 to recommend and the floor voted 29-4 to pass. I believe the legislators do not want to see jobs eliminated, but they can’t enact a public policy on that principle alone. As Sen. Jacobson said, “if we’re concerned about jobs, then we should make drugs legal to employ all the dealers in Ohio”. The payday loan system is flawed and needed to be reformed. There have been many studies and research into the negative aspects of the payday lending industry. The business model thrives on repeat borrowing, which keeps the customer in the cycle of debt.
Many of you want to complain the government doesn’t have the right to take away your “freedom of choice”. Again, you fail to understand it was through this same legislative process that the Payday Lending Law passed in 1995. I might add, the law was developed with the help of the payday industry themselves. Furthermore, the intention of the General Assembly at the time was to develop rates that would eventually be driven down by competition. This didn’t happen and instead the gates were wide open for abuse. In addition, the current system doesn’t provide any regulations, monitoring, or penalties. The new proposal is much stronger than the deficient framework payday lenders have been allowed to operate under in Ohio.
The payday lending industry advocates and lobbyists in Columbus over the past months could not offer the House and Senate an alternative to the bill. According to the reports, one proposal left the terms unchanged, another increased the fees/interest on the loan to an APR of 460%, and another was just a few cosmetic changes that translated into the same 391% APR. If there is anyone to blame, it’s your own greedy industry. Moreover, A 391% APR is exactly what is means and is used as a tool for comparison to select other lines of credit. It is similar to one using miles to compare various distances. Also, on a payday loan contract, the 391% APR is printed right on the document.
The payday lending industry has done some good for Ohio, as many of the senators admitted. There are many instances in which they help individuals. The sad part is the service does more bad than good in the long run. Does this mean the industry needs to be banned completely? Of course, not. The House and Senate have urged current payday lenders to continue doing business in Ohio, but not under the same law. They have encouraged the industry to transfer their licenses to the new system. Once again, the payday lenders are going to sacrifice their employees and customers. Advance America has already publicly admitted they will shut down all the stores in Ohio. What message are they trying to send to Ohio? It sounds to me this company is just being a sore loser.
In closing, I know people in the payday industry, either former or current employees. Some are very close members of my family. Many people will be affected by the law and supporting the reform is right for Ohio. At times, the government is responsible to make difficult decisions even when it comes to job loss in Ohio, but that can’t be a determining factor to kill the legislation. This is the time for the payday industry to start recognizing many States have already enacted laws to curb the business. More importantly, the industry need to put forth a better effort in finding a “middle ground” instead of drawing lines in the sand. It didn’t work last month, didn’t work yesterday, and I doubt it’s going to work in the future. Thank you for your time.
May 15, 2008 at 10:15 am
I am one of those people that have been stuck in this payday cycle for way too long. Once in, you cannot get out unless by some miracle you win the lottery or get an inheritance that allows you to pay off the loans and begin life again. I believe this is a hard but necessary change. I would like to know what will happen with existing loans. Will the companies be able to still collect at the high interest rate? Will they still be due within the 15-30 day timeframe? Or, will they work out payment plans and help to get consumers on their feet again……anyone know?
May 15, 2008 at 11:18 am
I am not exactly sure what would happen to the existing loans, if the bill is signed into law. I remember reading about the payday lenders in NC were allowed to continue collecting the outstanding loans after payday lending was reformed. If the bill is filed with the State Secretary after being signed by the Governor, the law would come into effect 91 days later, so payday lenders would be able to operate with the current payday law until the new law takes effect. Also, in order to continue giving loans, the companies would have to make a transition to the new terms in House Bill 545.
There might be a push for the short-term lenders in Ohio to cease making new loans in the next few weeks and focus on collections. The industry might suggest having other collectors “buy the debt” for pennies on the dollar and get out from under it. I would imagine the terms of any loan made under the old system would have to be honored and collected as such. I really don’ t know to be honest how these lenders will proceed given their days of lending under the current law are coming to an end. The good thing is collection under the proposed law in House Bill 545 would have collectors following the Fair Debt Collection Act. I am sure this will be a major issue in the months ahead.
May 15, 2008 at 12:51 pm
I really believe this is all politics. The republicians have a slim majority in the house. The dems want it. It’s a lot easier to cry “loan shark” than to address jobs or health care, and neither side wants to give the other ammunition for the fall election. The solution for both parties was to ban payday loans and take the issue off the table. By the way, it was publicly that banning payday lending was the intention of the CRL and has been since the beginning.
The new law bans payday loans as they exist today and proposes new loans modeled after the existing small loan act, which share the same interest rate cap (28%). Loans have not been available under this act for decades. It isn’t profitable to offer them. Is anyone old enough to remember when a Beneficial or Household Finance was in every neighborhood?
Goodwill has a payday loan like product they offer as a charity, but even a non-profit can’t get close to the 28% rate cap.
This bill solves a political problem for the two parties at the expense of thousands of good jobs. Consumers will still have access to payday loans in neighboring states (where at least they are safely regulated), on the internet (usually off-shore, non-regulated, and much more expensive) and of course from Louie the Leg Breaker - who is posed for a big comeback.
The message this sends for anyone who is thinking about where to locate a business? Avoid Ohio.
It’s sad a compromise wasn’t reached. A database could largely limit concurrent loans, mandatory repayment options would eliminate “the cycle of debt”, rules on collections practices would make life easier for the consumer. Instead Ohio simply eliminated a product consumers clearly want.
May 15, 2008 at 12:59 pm
Goodwill has a payday loan like product they offer as a charity, but even a non-profit can’t get close to the 28% rate cap.
The program like this that I know about is GoodMoney, which is only in Wisconsin. But if you read my latest post on StretchPay, you’ll see that many credit unions in Ohio offer payday loans at an APR of 18%.
The message this sends for anyone who is thinking about where to locate a business? Avoid Ohio.
If you’re a predatory payday lender who isn’t willing to follow an interest rate law? Yeah, you probably should. As an increasing number of states pass interest rate caps, these businesses are going to run out of unregulated territory to run to. They will either have to play by the rules or go out of business. Their choice.
Instead Ohio simply eliminated a product consumers clearly want.
Nope. Payday loans are still out there, like I said, from credit unions. And the bill encourages more financial institutions to get in on the game.
May 15, 2008 at 1:53 pm
You are probably correct that someone somewhere in the state will probably try to offer the new “payday loans” at 28%. Unfortunately only people with the best credit will be able to get these loans.
Credit unions are great for people who can get into them. My son was turned away from several. When Widener introduced the bill in the senate committee he stated that when the new federal rules for computing APR go into effect the 18% becomes something close to 200% because they will have to factor in the origination fees - exactly what payday loans have always done. When you consider a credit union has a selective market of consumers, often it requires direct payroll deposit, and has first dibs on the money in the account, it makes sense they can profit at a rate that is considerably less than payday vendors.
I’m all for social experiments. I just wish they would enable the new products and leave the existing ones intact. Consumers will choose the cheapest.
May 15, 2008 at 2:12 pm
The difference with payday loans under non-profit organizations like Goodwill is the money goes to fund other programs. Goodwill is just trying to break even at the end of the day. Also, they provide other services and require donations just like many other non-profit agencies. The mission of Goodwill is not to provide payday loans, but offer diverse services to help the community, which includes short-term lending.
I am not sure, but believe MI and PA have all but eliminated payday lending. The Commonwealth of KY has pending legislation to reform the lending law in their state. It seems everywhere one turns, payday lending is going the way of the dodo. Also, was there a provision in House Bill 545 to make internet payday loans illegal?
I will go back to the argument that decisions of the government often costs jobs in Ohio. My field is the public health area and I can testify to seeing many positions eliminated. When the state or federal government decides funds shouldn’t be given to public health programs, then it eventually trickles down the chain. The world is imperfect and unfair at times.
May 15, 2008 at 5:05 pm
I certainly agree the world is imperfect and unfair. I think you’re also right about the momentum being on the anti-PDL side for now.
It’s a shame that a government would pass a law enabling a product that could not be offered until they wrote the law, leave the law in place for years while the product became popular, allow companies to invest heavily in the infrastructure to deliver the product, and then abruptly change direction and punish the legal, state certified & licensed, lawful businesses who offer the product without compensation for their investment. Remember the state wanted this product to be offered to counter two things - unregulated lending that was occurring at businesses of all types using post-dated checks and loan sharks.
With 1,600 stores in the state there are bound to be bad apples, but the state decided rather than work with the very people they encouraged to enter this business they would simply abolish them, including the many, many “mom & pop” operators whose life savings are lost.
Imperfect and unfair is right. The state’s action might be lawful (this remains to be seen and will probably play out in the courts for a long time to come), but lawful or not it’s still wrong. This situation could have been handled so much better.
May 15, 2008 at 10:19 pm
I have heard some reports from the people I know in the payday industry. It looks like Advance America in Toledo, OH has been telling employees they will be closing all the Ohio stores soon due to the Senate vote yesterday. Yet, the employees say it’s a mixed message with no definite date to close, but the workers are looking for other jobs. I checked their company website and I couldn’t select Ohio as an option to apply for a loan or search for a store. When I searched for a location, it chose the closest store to be in Monroe, MI with none in Ohio. Finally, I watched a newscast that interviewed a payday lender in town that is turning customers away for new loans.
May 15, 2008 at 10:30 pm
It looks like Cash Advance is planning on closing 139 stores before the bill takes effect in August or September.
May 16, 2008 at 2:14 am
[...] There are two groups of people I feel for regarding the passing of the bill in Ohio that will cap interest rates on payday loans- those who will lose their jobs (and my cousin’s [...]
May 16, 2008 at 12:43 pm
I for one am glad SOMEONE is standing up to these people! There is a thing called karma, and now it is their time. I too got wrapped up in the cycle of debt! these companies are manly places in lower income areas here in Cleveland, and they prey on the people who they know will depend on them coming back! They suck you in and then the fees just keep adding up! There is no reason they cannot work out a reasonable way to survive this cap! There are other cities and States who have similar if not strictor laws in place! They just don’t get to gouge anymore, and maybe people who use them can actually get out of their cycle!
Payday loans are nothing more then a legal loan shark. they have horrible collection tactics and even when you get down to the very last bit on paying them off another fee, or finance charge, or something they just thought up gets added in.
People that live paycheck to paycheck have no chance of getting out one they are in. Now with this cap maybe there is a chance!
May 16, 2008 at 1:56 pm
There is no reason they cannot work out a reasonable way to survive this cap! There are other cities and States who have similar if not strictor laws in place!
Exactly, Angie. They could still run a business on the 28% interest rate. They are choosing not to.
Thanks for all of your info in this thread, Stimpson J. Cat.
May 17, 2008 at 11:49 am
Thank you, Representative Widener.
Thank you, Representatives Koziura, Batchelder, Budish, Stewart, D., Boyd, DeBose, Driehaus, Dyer, Foley, Garrison, Gerberry, Hagan, R., Letson, Luckie, Lundy, Newcomb, Peterson, Skindell, Stebelton, Sykes, Wagner, Widowfield, and Yates.
Thank you, Senators Jacobson, Cafaro, Roberts, Miller, D., Fedor, Miller, R.
The people of Ohio spoke and you responded.
Thank you to the government of Ohio for a job well done. The day that this bill is presented to Governor Strickland and signed into law should be declared an official Ohio holiday. We will finally be rid of these scum sucking leaches. And not one bounced check fee, garnished paycheck, or bankruptcy too soon.
May 17, 2008 at 2:24 pm
Thanks for this thread. The level of discourse here is about 100 times that of the typical newspaper editorial!
Publicly traded corporations in the industry have a profit margin around 8.5% - about half that of a credit union or bank.
Of course these loans are expensive, they are RISKY! Do the math on what one bad loan costs. Assuming a $100 loan at $15 per hundred you have to make almost seven other $100 loans to get your principal back ($100/15=6.67 loans) assuming NONE of these 7 loans goes bad. This doesn’t even begin to cover the cost of originating the loan, paying fixed overhead, labor etc.
About those added on “fees”… If the customer doesn’t pay you back for that $115 loan do the fees increase? In Ohio, the only legal fee you can add is what the bank charges you for the NSF charge + $20 (much less than other merchants). That’s it. If someone adds any other type of fee they are breaking the law. If they don’t pay you for two months or two years the amount they owe is still $115. The only other exception I can think of is court costs and those are NOT fees. That is passing the exact dollar amount that the lender paid a court along to the customer if the business is award a judgment - and not before. Do we take people to small claims court? Sometimes - if they won’t talk to us. Usually these people are pros - they fake paystubs, use stolen cell phones to fake employers, tell us they are dead when we recognize their voice… etc. No customer who keeps us informed of their situation and intent gets taken to court.
Now why would someone “choose not to” operate a profitable business? Do you really believe businesses would prefer bankruptcy over a reasonable compromise? Calculate Goodwill’s plan and Stretch Pays APRs including the origination fees and see what those APRs are. Even non-profits aren’t hitting 28%. Compare those APRs to a payday loan USING THE SAME TERM. Our store makes many, many loans for considerably longer than the 14 days the newspapers consistently claim is normal. One month is common, so compare one 31 day loan to another, not a 14 to a 31.
How can you reduce the cost from $15 per hundred to $1.28 per hundred (a 91% reduction if my math is right) and stay in business with a 8.5% margin? You can’t. Some stores will survive on check-cashing or other revenue, most will fold, none will make loans at 28% to the same high-risk customers. I know of people who have already been fired in Ohio and the bill isn’t even signed yet.
If you know of any for-profit business in the nation that can meet a total stranger with poor credit, evaluate their credit-worthiness in less that half an hour (and we do underwrite very carefully based on a long list of criteria; we don’t just hand out money), and make them an emergency loan at 28%, with no collateral give me their name and number. I’ll be on the phone to them ASAP because I’m desperate to figure out how to do it. SERIOUSLY - I WANT TO KNOW HOW!
As for our terrible collection practices - we freely offer re-payment plans to anyone who asks for one and we let the customer name their terms. If they ask for help we refer them to one of the non-profit credit counselors in the area, and we work with any credit counselor. In fact we love to work with credit counseling agencies. They do the record keeping for us! There is no reason for anyone who walks into this store to claim they are “trapped”.
The last point I’d like to make (I promise!) is people THINK payday loan companies prey on the poor because they don’t know enough about the industry to tell the difference between a payday loan store and a check-cashing store. In general, check-cashing stores can survive in lower income neighborhoods because the banks and credit unions have abandoned the area and there is a need for check cashing, bill payment, etc. If they are licensed to make loans they may make a few loans, but it won’t many because the consumers in that neighborhood won’t qualify.
I work in a store that is fairly typical of the industry. The median income for a two mile radius of our store is over $62K. Although we occasionally see someone with a six-figure income most are around that median. We also see some customers who earn (or collect) as little as $600 a month. We will cash their checks and give them free money orders to pay their rent — but they aren’t going to get a loan, or if they do it would be a very small one, such as $50. Our typical loan customer isn’t rich, but they make a decent living and they can qualify for a payday loan.
Compromises could have been made in Ohio, but the government only wanted to focus on the APR because that makes the best headlines. This is an election year.
May 19, 2008 at 4:29 pm
Glenn,
The government did try to negotiate with the payday lenders but none of the offers were considered to be enough of a compromise. But let’s set aside the bill for a moment.
Would you consider your business typical of a payday lender in Ohio or more of an exception in how it operates? What would you propose be done to a) keep impoverished people from getting trapped in a debt cycle and b) allow payday lenders to remain in business?
These are legitimate questions. If there is a way to protect the customer and the business, I am all for it and open to suggestions.
May 19, 2008 at 8:02 pm
Brandy:
Thank you for asking!
I don’t know if my business is typical, I personally know of a number of other small businesses who operate under very similar procedures. I can’t really speak for the big chains.
I have to disagree a bit on the “good faith negotiation”. I don’t believe it happened at all. Asking someone to sell a product below their cost is not negotiating, and that is the only thing they wanted to “negotiate” on. They were so fixated on the nonsense APR they couldn’t see anything else, even Widener called the APR “fictitious”.
What could be negotiated to make the product better?
There’s more than one way to skin a cat, but I like these “reforms”:
- Everyone likes financial literacy training (which I think should be mandatory for high schoolers and optional for adults). Adults don’t want to be told what to do. They may manage their money differently than you or I, but that doesn’t give us the right to force them to take a one size fits all box. Some people will always choose to spend more than they make. They are not “trapped”. These people will get a financial windfall like an inheritance or a lucky night at the casino and they will still keep borrowing like nothing changed. That is a lifestyle choice.
- I really like the idea of a mandatory repayment plan a customer can invoke once a year, spreading the loan into four payments. This gives the people who are having a hard time repaying a loan a way out. The devil is in the details though – self-employed people, people on commissions, etc. don’t have regular pay cycles so you need to be careful on the wording of the law.
- “Impoverished people”? I think we need to focus on the customers of the product – the middle class. The term “Improverished” sounds like the “preying on the poor” myth. Nevertheless, I do have a suggestion to help improverished people – CREATE GOOD JOBS and protect the ones we have like a mother bear protecting her cubs. I believe it’s easier to keep jobs here than it is to create new ones. A little protectionism is a good thing.
- Require first party collectors (that means me) to adhere to the Fair Debt Collection Practices Act.
- I’m OK with a database under certain conditions, but remember no database is perfect and no database will stop people from crossing state lines, tricking the database with fake SSNs, getting loans on the internet (which is where the real payday loan growth is taking place), etc. So I support a database under certain circumstances:
(1) There must be a strict service level agreement with the database company specifying a 999.99% uptime requirement (5-9’s in IT-speak). As a former database administrator I know this is attainable. One of the biggest complaints I’ve heard from other “database states”, such as Florida, is the database crashes during periods of peak demand. The customer should not be subjected to this. As an aside, I suggest writing the law so that the database is maintained, housed and operated in Ohio, and that allowing any data in the database out of the state be punishable by death (told you I was a protectionist – I want those jobs here).
(2) The database should be paid for with a per transaction fee, which should be added to the loan origination fee and not absorbed by the business. Ohio’s payday loan rate will still be lower than the $17+ average nationwide… and vastly lower than internet rates.
(3) Using the database, limit a customer to 2 concurrent loans. I would prefer one but sometimes a customer underestimates the amount they need and they have to come back to the well for more. Prudent customers try to borrow as little as possible and they sometimes underestimate. Two should be enough. This won’t stop frauds from getting as many loans as they want, but at least no one can make the claim that they were “trapped” into getting a ridiculous number of loans.
(4) I am OK with the cap of a max loan size of 25% of persons gross. But I have a problem with how HB 545 stipulated a person’s income be proven - with documentation from an employer. Not everyone has an employer, and some that do have income that varies greatly from period to period. An example of this is one of my favorite customers. He is an independent auto mechanic. His proof of income was a pile of receipts and a bank statement that supported his income claims. Under 545 he wouldn’t meet the income proof requirement. When he gets a large repair and doesn’t have the cash to buy the parts he takes out a payday loan. Over time we determined he was a good risk and allowed his limit to creep up to the $800 Ohio maximum. But under the 545 scheme he couldn’t buy the parts to do the repair because he couldn’t prove income. Again, the devil is in the details; let us determine how to prove income as long as we document how we did it. BTW – we haven’t seen him lately. I assume he now has credit with a parts supplier. People don’t take out payday loans indefinitely. They use them for a while and eventually find other alternatives and move on. Good for him. I still have his contact information in case my car breaks down.
(5) Negotiation is a two way street. I think so far I’ve just been giving things away and not asking for anything in return. This one really is a compromise. Limit the return check fee to only one on a loan so a company can’t “run up” a person’s balance by resending the check when you know it won’t clear (there currently is no limit on this). BUT since other merchants can charge considerably more than $20 for a bounced check we should be allowed to do the same… but only once per loan. This seems fair to me because the customers who cause extra collection expenses pay extra, and it eliminates a practice that I have heard of some companies doing.
That’s all I can think of for now. Leaving the cap in place and implementing these changes would protect consumers from bad practices and to a degree from themselves, but not by banning the product. The most important thing these changes would do is give a person a way out with a payment plan and attempt to cap the number of loans they can get. This way no one can claimed they are trapped in some sort of a cycle.
May 20, 2008 at 1:02 pm
There are number of typos in my response, as usual, but I find the “999.99%” percentage humorous. Let’s try 99.999%. Please overlook my other errors. I inserted plenty.
Also - for those following the debate the Columbus Dispatch wrote an interesting editorial yesterday worrying about what payday loan customers will do now that payday lenders are out. Gee - after blasting the industry for months they are suddenly worried about the consequences of their actions. I’m mystified.
You can find it here: http://www.dispatch.com/live/content/editorials/stories/2008/05/19/payday.ART_ART_05-19-08_A8_1CA79UO.html?sid=101
May 20, 2008 at 1:07 pm
There are number of typos in my response, as usual, but I find the “999.99%” percentage humorous. Let’s try 99.999%. Please overlook my other errors. I inserted plenty.
I had guessed what you meant. Although it would be humorous to try and force a nearly thousand percent uptime requirement.
Thanks for the Dispatch link. I’m assuming from your posts that you work for a private, non-chain lender. The chain lenders are (typically) the ones that do move into poorer/impoverished areas and start creating havoc. I wonder how willing/able they would be to agree to terms such as what you are suggesting?
May 20, 2008 at 5:43 pm
Some of what I suggested, plus more, was included in the industry supported HB 337. I think my contributions were mainly the database with a concurrent loan max and the increase in a returned item fee. Other states are operating with databases, so it can be done here. There is no doubt in my mind that industry support for a plan like this would be unanimous, it is almost their starting point.
Unfortunately, it appears the out of state CRL will win this one. They have the governor’s ear, and in recent media clippings for just one day they stated that “profit margins for payday lenders are irrelevant” (Leslie Parrish, CRL) and “We take them at their word that they will leave the state.” (Tom Allio, CRL). Clearly they aren’t looking for compromise. They want any competition to credit unions and banks eliminated that suppresses fees. They are well funded by a credit union and they play to the public emotion exceptionally well - even if they were a bit loose with the facts, to say the least.
I read in one article that the credit union that backed them went from operating in the red to the black as soon as the payday lending competition was eliminated in NC. I’ll let you research that one.
Payday loans function like gravity to bank fees. Without that gravity there is only one direction they can head. I suggest watching your checking account very closely in the years ahead even if you have a credit union. Non-profits have to make a profit too. If you want to get a good idea of other nice consequences coming read the “payday holiday” Fed study to see what’s happened elsewhere. You’ll find it easily through Google.
May 21, 2008 at 4:52 am
[...] Debt Collection In the comments section of my post on Ohio’s HB 545 (aka the payday lending bill), Glenn Burton mentioned the Fair Debt Collection Practices Act and it [...]
May 21, 2008 at 5:19 am
I’ve been crunching some numbers regarding APR rates and the 28% is extremely low for a high risk loan. But the current APR rates are too high. Politics is at least partially about marketing and the “lower APR” offer the bill carries has a nice ring to it for Ohio voters. But there could be an APR between the current one and the proposed 28% that would work if other aspects of the bills (I’m squishing the two together to some extent) were embraced.
It would be ideal for a debt/financial expert to be on site at payday lending locations. If not on site, there needs to be one very close by. In either case, a worksheet explaining the Fair Debt Collection Practices Act (in extremely easy to understand terms) needs to be handed out with each loan. The borrower should sign a log stating that they received the worksheet. I agree with the two concurrent loan limit and there also needs to be a cap per year on the number of loans that can be taken out. The one-time payment plan per year and solo check return fee per loan are also solid ideas.
I’m kicking around some more ideas regarding this subject but those are the ones I can get out in words right now.
May 21, 2008 at 9:15 am
I think we almost have it solved out!
- You can have an cap on APR if you want it but you can’t make cut into the profit margin any further. I think the fee, which is below average nationwide anyway, is easier to understand. The low profit margin of the industry bears this out. Read that fed study before you pass judgment on this one.
- You can put all the explanations you want on the agreement. We already refer people to a credit counselor an. But if you like we can put that on the agreement too… might as put the optional payment plan in the same paragraph. I don’t think we can afford to hire a counselor on-site just in case someone needs them!
- I’m glad you like the concurrent loan limit.
- I think we should leave out the max loans per year though. Let’s consider it a trade for the other give-ins. There should only be a law law limiting the number of loans per year if there is also a loan limiting the number of problems a person can experience during the same time period. Some people borrow for emergencies. Some for lifestyle reasons. It should be their choice. Would you like it if there was a law saying you can only use your credit card for four purchases per year? Or you are only allowed to have one credit card? Or you can only buy a car every seven years? Let’s not dictate spending. Instead offer offer help to anyone who needs it and let people manage their own spending. Most do quite fine without my advice.
- Solo returned item fee - got it.
Great - we’ve about got it. Now do you know how we can get in touch with the governor to work out the final details? Or perhaps the Cabinet member in charge of financial institutions? Or anyone who can reach the governor?
We need to present this to him FAST and he isn’t returning my calls.
May 21, 2008 at 1:02 pm
This might be a job for me. I will get you in touch with the Governor on the Batphone…
There is nothing you can do to stop this. The Governor wanted a strong payday loan law and that is what he got. It’s even better than what he expected. Gov. Strickland will sign this next week and on the off chance he vetoes it, then the act will go back to the Gen. Assembly. The veto will surely be overridden by the House and Senate by only needing 60% to pass the law.
{ring, ring}
…Hello, Mr. Governor…yes…ok…I will tell him.
Ted says, “He always hated you and that’s why he won’t return your calls”.
May 21, 2008 at 2:23 pm
Unfortunately for all of us, I don’t think Moue or any of our names carry enough weight to get us any attention from the government.
May 21, 2008 at 4:18 pm
I’m willing to compromise on the max number of loans per year issue if there is another regulatory tactic in its place.
Payday loans are extremely high risk for the lender- that is the reason I’m willing to give some on the APR rates. They are high risk because the consumer often has poor (or no credit). But credit card companies- who also want to avoid a risk- give this type of borrower a low credit line for this reason. Can a person have more than one of these low level cards at once? Sometimes, but credit checks will usually prevent them from having very many at one time. The card company will increase the credit line once the borrower has established that they can be trusted (and will often decrease the APR some as well).
If there isn’t a cap on the number of loans a person can take out in a year, there should be some way they benefit from getting more loans (within reason- we don’t want people rushing out and getting 100 loans, either). Their APR should be decreased, certain fees waved- something. This would also help the business, since it would make for more return customers.
May 22, 2008 at 9:56 am
Some customers will get multiple payday loans at once the same way they get multiple credit cards at once. They will cheat on their applications and fake documents, cross state lines, get on the internet (google “payday loan”), turn to loan sharks, even steal items to pawn. It’s easy for you or I to think we’d never do these things - but if you are faced with a sick child, or an eviction – nothing is off the table. Payday loans are reasonably priced based on the risk - the low profit margin of the product proves this, and they are REGULATED. There is no one voice that speaks for the industry - the CFSA is probably the closest thing. They have been trying to get their “best practices” policies turned into law for years. Payday lenders are not opposed to consumer protections.
No lender, no database, nothing - can stop a person from getting multiple credit cards or payday loans or any other type of loan. The database may slow it down, perhaps quite a bit, and it will give policy makers better statistics to understand consumer behavior. It won’t stop a determined person.
All lenders investigate the consumer using all the tools at their disposal and they make the best credit decision they can. No one wants to loan money that can’t be repaid. It’s illogical.
Your repeat customer reward idea is really interesting because some businesses already do this. The payday loan opposition testified that this was a BAD BUSINESS PRACTICE because giving customer discounts encourages them to borrow more! In the next breath these people claimed we charge too much! You can’t please these people.
There are many ideas that will work to help consumers. My position is consumer PROTECTIONS such as fair collection practices and mandatory repayment plans are the best solutions. Consumer RESTRICTIONS, such as you can only borrow “n” times a year, are insulting to the customer and simply force them to turn to more expensive unregulated options. If you really want to protect people, lay off the restrictions.
I think we’ve shown there is common ground - now if we can just get that Bat Phone number and get the governor to think it through like we have…
May 23, 2008 at 12:54 pm
There is Good and Bad in everything. I have used Payday loans and gotten in deep before. I have also saved myself major bank fees in the past. Anything can be Abused. I don’t feel that $15.00 per $100.00 is to large of a fee if the bank is going to hit you $35.00 for a $1.00 overdraft. Lesser of the evils. I rarely use check services anymore, but if there was a need i have no problem in doing so. I guess i should say had, because i no longer will have that option available to me. I’m sure that the banks will be pleased.
May 24, 2008 at 10:25 am
The banks should be pleased indeed. But the driving force behind the CRL is actually a Credit Union - of a sort. Eliminating competition through the legal process is their goal. You might find this paper on the “Predatory Charity” interesting:
http://www.consumersrightsleague.org/UploadedFiles/PredatoryCharity.pdf
May 28, 2008 at 10:22 am
Why aren’t we capping the amount banks can charge for bounced checks? It is interesting how the legislators aren’t going after banks for all the irresponsible mortgage loans they made. Who is benefiting from this bill. THe banking industry in Ohio. How is it that upper class America decides what is best for working class America. If I want to pay that interest rate, it is no ones business but mine. What alternative are you going to offer?
May 29, 2008 at 5:47 pm
It’s very difficult to solve problems like a lack of jobs, a slow economy, etc. Payday loans are an easy target because people think the check cashing stores located in poor neighborhoods make lots of loans - which is generally false; those stores will be here long after the payday loan stores are gone. Plus, taking a short time loan and expressing the interest rate as if it were an annual loan makes GREAT headlines. The editorial writers love it! Attacking payday loans gives politicians a way to claim they are doing something positive in the upcoming fall election without actually solving anything. Clever!
Bank fees are indeed off the charts… If you express their fees as APRs like payday loans it easy to generate 4, 5 and even 6 APRs. They make more than half their income off fees. They also have a lot more money to throw around than the tiny payday loan industry so don’t expect much to happen on that front.
I don’t blame banks for the mortgage crisis. Institutions like the self-help credit union are worse. But I think to be fair to all mortgage institutions you have to ask if the risky mortgages were not made, how many people who are making their mortgage payments on time would not have gotten the opportunity to own a home? Yes, some couldn’t make the payments and are in foreclosure, but I bet more than half did and are still home owners. Is the glass half empty or half full?
June 3, 2008 at 11:59 am
This makes me wonder how banks can get away with charging the customers the outrageous fees they do? If you want to help the economy crack down on the atm fees,nsf fees,credit card over limit fees,change in interest rates due to low credit scores. All these companies have been ripping off the middle class for years and it just keeps getting worse. They think up new ways to charge higher and higher fees. My idea is these companies are getting what they have deserved for years. Now they are crying how can people take out loans and not pay for them thanks to them they made it impossible. signed middle class!
June 3, 2008 at 12:34 pm
Hopefully, part of the program that Strickland’s committee for improving the economy of Ohio will be to go after the unethical behavior of banks.
June 3, 2008 at 3:00 pm
I thought the Credit Union Journal as the source was interesting. Good-bye stretchpay?
Payday Lender Group Critical Of Proposal
Credit Union Journal
June 2, 2008
National
A trade group representing the payday lending industry criticized a
proposal for “model payday loan alternatives,” saying if adopted the plan
would eliminate not just payday lenders but many of the programs offered by credit unions, as well.
In response to a report titled “Confronting the Debt Culture” that was
released during the conference of the same name, the Community Financial Services Association of America said it’s “further evidence that the advocacy groups authoring this study don’t understand the basics of
short-term consumer lending.”
“While the intentions are good, the recommendations in the report
demonstrate the complexity of small-dollar, short-term credit offerings and
their costs,” said D. Lynn DeVault, CFSA president, in a released
statement. “So-called ’solutions,’ such as annual rate caps would eliminate
not only payday lenders, but also the model credit union alternatives
described in the report as well.”
June 4, 2008 at 2:54 pm
El Oh El!
First, the House, then the Senate. Next, back to the House for final concurrence. Finally, the governor signs the act into law!
Ohio Consumers 4 PDL 0
Boo hoo to the haters…
June 10, 2008 at 10:54 am
[...] Ohio Senate Votes on Payday Lending Interest Cap Today (5/14) [...]
July 18, 2008 at 9:38 am
I’m in favor of the new law, the government should be investigating Cashland officials for the embezzlement of money. I’d start with the corporate office in Sharonville, OH, the new law is in the better interest of everyone.