Payday loans in Ohio: still alive
It’s interesting that 12 people took the time to vent their “moral outrage” over changes in the Ohio payday loans industry. Interesting, in that it wasn’t until the 13th person commented on Sheryl Harris’ Cleveland Plain Dealer editorial that they noticed something wacky.
Here it is. The numbers have been left the same to preserve the editorial integrity of the source material:
So when payday lending was legal last year, CheckSmart customers paid $575 to walk out the door with $500 in cash.
Under the new licensing scheme, CheckSmart customers pay $575 to walk out the door with $500 in cash.
Shocker!
Sure, it must be a typo, but let’s move on.
If you didn’t already know, payday loans have been banned in Ohio. This ban came not only during a recession, but during a time when Ohio’s state of budget affairs was among the worst in the nation. Unemployment is high; kicking out legitimate businesses is a bad idea.
Harris draws our attention to House Bill 545, which she says was “supposed to help consumers by creating a Short-Term Loan Act that gave borrowers at least a month to pay off loans. More importantly, the new law was supposed to drive down the costs.” The crux of the argument Harris and people like her use against the payday loan industry is that the APR for a loan would be a “jaw-dropping” 391 percent.
But that’s not what’s really jaw-dropping!
What’s truly jaw dropping is that we’re expected to eat and like the spoon-fed rhetoric that payday loans are annual loans! Right-thinking people must stand up for the intellectual honest and stamp out these deceptively mild distortions of the truth. Sure, if a payday loan could be extrapolated out over an entire year, 391 percent in annual interest is possible. However, since they are two-week loans that charge $15 in many locations, You’re looking at 15 percent paid in interest, on top of the principal. For a short-term loan that is often given to clients with less than perfect credit, that is both a bargain and a price point that helps shelter lenders from risk.
What does Harris coo about, in honor of the misguided law? She yearns for a 28 percent APR, which would even one-up the supposed cap President Obama wants to put on payday loans at 36 percent APR. With Obama’s APR, the lender profits to the tune of $4.14 for a $300 loan made to a consumer. How is that anything other than insanity for a business? Furthermore, what kind of insanity afflicts people who think that today there are religious reasons for not charging interests on loans (they essentially coined the term “usury” and gave it boogieman status… similar to what was done to hide the original meaning of the word pagan… now it’s considered evil in the public eye, goat horns and all… it originally meant “country dweller” or “rustic”).
Facts are simple here. Payday loans help all sorts of consumers, particularly those who need emergency cash that can’t wait until their next payday. Few banks or credit unions offer micro loans, particularly for customers with less than perfect credit. Thus, the loans fill a need in society.
Usury laws have a point, whether the origins for them be religious in nature or not. There has to be some protections for consumers in place, but usury doesn’t really apply in the case of payday loans. Why not? Well you borrow the money, and pay it back in one to several payments for a fee – all the terms are up front. A mortgage that raises the interest through the sky without notice…is a bit different. And the multiple hundred percent interest also doesn’t apply.