Payday loans and the Small Loan Act
Jim Siegel of The Columbus Dispatch reports that the Ohio Department of Commerce will not regulate payday loans into oblivion. Great, but they’re on the verge of being taken away from the public as is, thanks to House Bill 545. It capped annual interest rates at 28 percent for the high risk, unsecured loans, which is not a workable profit model. It isn’t oblivion, but it’s close.
In order to save scores of employees from unemployment and keep options open for consumers who need emergency cash but have less than perfect credit, lenders who remain in Ohio are offering pay day loans under the state’s Small Loan Act. Ernie Davis, the commerce department’s legislative director admits that lenders ”are operating under licenses set in statute.” Yet meddling politicians – driven as if their masters’ whips are at their backs – are going to look again and again to make sure lenders are “abiding by terms set in the new law.”
What’s their main problem?
Some are claiming that the process payday lenders are using under the Small Loans Act – issuing a check payment, then charging a fee if the customer wants to cash the check there – is exploitative. This, of course, is ridiculous. They can cash elsewhere, such as at their bank (they can’t take out payday loans if they don’t have bank accounts). Furthermore, check cashing businesses charge a small fee to cash checks. Why should a payday lender do it for free?
Gov. Ted Strickland says that he’ll be willing to review the situation if the law is being violated, but otherwise, pointless legislative battles that waste the taxpayers’ money must not occur. Furthermore, the payday loans industry should not be squeezed any more than it already has. John Rabenold, VP of governmental affairs for Cincinnati-based Axcess Financial (parent company of Check ‘n Go) said that half of their 72 Ohio stores are no longer in operation, and “the rest are struggling.” Rabenold would welcome a return to the debate over House Bill 545, but only so long as politicians wake up and see that capping payday loans hurts consumers.
Thank you, Mr. Kursman. I’d think by now the “consumer advocacy” groups are probably just plugging their ears and putting their collective heads in the sand. How much research – and good research to boot – can come out on the positive benefits of payday loan lending before they get with the program? When used responsibly, nothing bad happens, but when they get taken away, bad things DO. 2 and 2 will always equal 4, but apparently not to Ohio legislators.
Federal Reserve Bank of New York researchers concluded that the elimination of payday loans results in increased credit problems for consumers, such as more bounced checks, complaints about lenders and debt collectors and increased filings for Chapter 7 bankruptcy. This proves that the elimination of payday lending does not eliminate the need for short-term, low-dollar credit.
Payday lending critics claim that the industry “costs” American families $4.2 billion in fees. But in 2006, consumers spent $4.2 billion in ATM services charges to withdraw their own money. They paid an estimated $22 billion in NSF fees to banks and credit unions, and banks collected an estimated $10.3 billion for overdraft protection services. Businesses charged an estimated $57 billion in late bill payment fees (more than 140% of the total estimated lending volume in the U.S.). And credit card interest cost consumers more than $87 billion.
Payday loans are dangerous for the general public. most people who use them already have too much debt to be able to function on their income and adding more only compunds the problem until they declare bankrupcy wich doesn’t help anyone.
There is a place for short term loans, unsecured loans or payday loans whatever you want to call them but to pay off existing debt is just suicidal.