That amounts to a profit of $1.08 for every $100 loaned

Does it seem to you that payday loans establishments will be able to pay their leases, staff or tiny fragments of their electric bills with that small amount of profit from their services? It’ll never happen.

Yet Ohio Gov. Ted Strickland signed House Bill 545 on June 2, 2008

This established strict regulations for payday loans businesses in Ohio. In addition to capping the annual interest rate at 28 percent, the bill set a $500 borrowing limit for consumers and restricted borrowers to four loans per year. It also extended loan terms to 31 days from 14 days.

HB 545 went to a citizens’ vote. It was approved during the November 4 election, and will go into effect by the end of November. Strickland had this to say about the legislation:

The bipartisan legislation takes a major step toward protecting Ohio consumers who are already struggling with debt by strictly regulating payday lenders and lowering the maximum interest rate for short-term loans.

Yet it’s OK that

Apparently, select Ohio banks and credit unions have been offering these loans under other state lending statutes that allow them to charge interest and fees that add up to triple-digit annual interest rates.

Here again, the concept of an annual percentage rate shouldn’t apply. Now under HB 545, we’re talking about 31-day loans, not annual loans. This applies to payday loans from a traditional short-term consumer lending organization, a bank or a credit union.

If banks and credit unions can do it, so should the smaller lenders

Are they afraid of competition? Perhaps they are. But the banks also know that offering unsecured short-term loans at 28 percent APR isn’t a sustainable model. It will lead their clientele swiftly into the arms of overdraft protection when emergency expenses pop up. As has been documented in places like this and many others, overdraft protection is a much more expensive proposition.

In the meantime…

While the banks are sopping the biscuit, many short-term lenders have begun closing their stores and leaving Ohio. Some are seeking licenses under the Ohio Small Loan Act (see http://www.ece.umd.edu/MEMS/projects/fib-pdf/pdf/doc/ohio-state-legistration-voting-on-pay-day-loans.html) and the Ohio Mortgage Loan Act (see http://www.com.state.oh.us/dfi/pub/03-06%20CF%20Apps/SL/Small%20Loan%20Codebook%205-6-05_retitled_.pdf) that allows them to charge APRs that can reach 223 percent on a two-week $200 loan. That proves to be sufficiently profitable for the lender and easier to pay off for customers.

Because those acts are on the books in Ohio, it is unlikely banks will offer short-term consumer loans at interest rates close to what consumer advocates had envisioned when HB 545 was proposed, said Marc Kilmer, a policy analyst at the Buckeye Institute for Public Policy Solutions. They are critical of the bill.

Also in the meantime, Gov. Strickland says no to short-term consumer lending, but apparently has little problem with his employees who engage in pedophilia:

Payday loans are in demand and beneficial

In the study “An Experimental Analysis of the Demand for Payday Loans” by collegiate professors and researchers Bart J. Wilson, David W. Findlay, James W. Meehan, Jr., Charissa P. Wellford, and Karl Schurter, the researchers conducted a laboratory experiment to examine the extent to which the existence and use of payday loans affects individuals’ welfare in an economic environment in which individuals with limited income and financial resources encounter uncertain expenditures. (p. 14)

After analyzing the pros and cons of research that has been compiled over the past 10 years regarding payday loans, they conclude on p. 33 as follows:

We found that the majority of subjects in our experiment benefited from the existence of and their subsequent use of payday loans.

Further studies like those by Dartmouth economics professor Johnathan Zinman suggest that the absence of payday loans companies from Oregon has a negative correlation with the overall financial health of citizens. Studies regarding this useful short-term consumer loan product are appearing more frequently as we come to understand that offering consumers choice when it comes to money is beneficial.

Something that a lot of people don’t know about me, is that I am a complete web comic geek. Chances are, if you want to befriend me, and you drop me the URL to a series that you author, you’ve got my support in the bag.

Now, I guess my thing with comics, not the kind with superheroes or any of that (though I’m not hating, considering that one of my closest friends reads those kind), isn’t completely online, per se. My favorite comic strip of all time is Scott Adams’ Dilbert, which has been a mainstay in the predominately syndicated newspaper funnies for years. In fact, it’s quickly become a regular part of my morning routine before I start doing actual work.

It’s For a School Project!

Another much lesser-known comic, which is also a part of my morning routine, is Ryan North’s Dinosaur Comics. The premise is as follows; nearly-daily stories are told through the same six panels, and through the dialogue of a Tyrannosaurus Rex (T-Rex) and his two other pre-historic friends, Dromiceiomimus and Utahraptor. While many, including myself, dig it for its offbeat sense of humor, I also love it for its habitual philosophical and/or cultural ranting. A recent installment illustrates this point beautifully:

Yes, T-Rex is right to some extent. I mean, yes, I whole-heartedly agree that the 1970s, sans Pink Floyd, Led Zeppelin, Monty Python, and the Rocky Horror Picture Show, were some very bleak times in popular culture. I would extend that to most of the 80s, to include everything except for The Cure, Goth Rock, the advents of the Nintendo and the compact disc. However, I wouldn’t agree with T-Rex on his quip over Forrest Gump. These days, it’s a really hard movie for me to watch, but it is a good one nonetheless.

Hint, Hint, Mr. North

T-Rex describes such things he doesn’t care for as “low points in culture.” Unfortunately, the state of our country’s economy just recently hit a low point and is barely starting to recover after being on a decline for so long.

For the last year or so, our nightly news has been littered with stories of banks collapsing, foreclosures skyrocketing, and regular people seeing their 401k’s withering away to nothing and needing payday loans.

But now, elected officials want to not just knock us down from the recovery we’ve started to make, but rather inflict even worse damage on our financial state than ever before. For instance, Ohio governor Ted Strickland wants to put about 6,000 payday loans company employees in his state’s unemployment line. In the end, Strickland is setting his state up for further financial ruin, considering that people will have nowhere to turn in dire straits.

Surely, financial hardship is no laughing matter and some have no choice but to turn to payday loans. But, on November 4, we all can make sure that our economy doesn’t come to that.