Matthew Glans of the Heartland Institute had this to say in the Akron Beacon Journal about Ohio legislation:
The Ohio legislature, like many governing bodies across the country, apparently believes it is a better economic steward than the market. Legislators are considering new laws that would limit the ability of consumers to choose what lending services are right for them. By placing an interest rate cap on short-term or payday loans, the state is essentially dooming these businesses to failure. The end result of the ban will be lost jobs and a lost outlet for emergency financing for those who are now hurting the most.
In a study conducted by the Federal Reserve Bank of New York, researchers found that states with bans on payday lending experience an increase in bounced checks, higher rates of bankruptcy and more complaints related to collections. Payday loans are admittedly risky and can be misused, but the inherent risk the borrowers create necessitates a fee to use these loans. The market works to determine what these rates and fees will be; if they are overly burdensome, the customers will not use the service.
Legislators need to be careful not to stifle consumer choice in the name of consumer protection.
4 responses so far ↓
1 Seany // May 8, 2008 at 11:23 am
The dark hand behind “Center for Responsible Lending”
I wonder Ohio Legislators know the real face of so called activists and their organizations.
I just found the following article from Forbes magazine.
I am just shocked at who is behind this type of anti-payday lending legislation effort and who is leaping benefits:
(quote start)
(from http://www.forbes.com/forbes/2008/0310/042b.html )
Martin Eakes’ campaign to straighten out subprime lending has some wrinkles.
You may not know folksy North Carolina consumer advocate Martin Eakes, but he sure has rattled the lending industry.
The 53-year-old Yale-educated attorney runs Self-Help Credit Union, a nonprofit in Durham, N.C. that caters to low-income borrowers. But much of Eakes’ energy goes into his advocacy outfit, the Center for Responsible Lending, and his efforts to eliminate predatory loans. He’s to mortgage lenders what Ralph Nader was to the auto industry.
(omit )
In payday-loan-free North Carolina Self-Help has thrived. Its assets have jumped from $114 million in 2003 to $292 million last September. Its return on average assets is 1.4%, reports snl Financial, versus the industry average of 1.1%. Terry L. Kibbe, a former think tank fundraiser who last year started a libertarian consumer advocacy outfit, Consumers Rights League, notes that Self-Help’s high delinquency rate–it’s seven times that of the typical credit union–proves that Eakes is as bad at judging borrowers’ ability to pay back loans as anybody else. Self-Help says less than 1% of its loans ultimately default.
Eakes’ spokesperson insists that bans on payday lending don’t hurt consumers, citing a survey in North Carolina. She denies that Eakes’ lobbying is aimed at benefiting Self-Help’s lending business and chalks up its high growth to strong demand for its fixed-rate mortgages, 90% of which go to first-time home buyers. She says the credit union’s overdraft fees are lower than those at most banks.
Eakes certainly hasn’t gotten rich off his efforts. His annual salary is under $70,000. Self-Help pours profits into do-good-type investments. It paid $23 million for a building on 17th Street, NW in Washington, D.C. in 2003 that serves as a headquarters for the Center for Responsible Lending and other unaffiliated nonprofits.
(quote ends)
Please read the whole article about Center for Responsible Lending.
2 Jeff // May 8, 2008 at 12:08 pm
The Ohio Chamber is against HB545
http://www.ohiochamber.com/governmental/pdfs/payday%20lending.pdf
3 david martin // May 9, 2008 at 8:15 am
more on Mr. Eakes
Meet Martin Eakes, social activist and founder of North Carolina’s Self-Help Credit Union and the Center for Responsible Lending. Although Self-Help’s main activity is providing subprime loans, Mr. Eakes lobbied North Carolina’s legislature to pass “predatory lending” reform on its subprime lenders and to outlaw other forms of consumer loans.
It appears that the only subprime loans that Mr. Eakes condones are his own. Coincidentally, his credit union industry is gearing up to start competing with some forms of the payday-style lending that he regularly attacks.
Under Eakes’ lending reforms, North Carolina leads the U.S. in foreclosures. In a year-over-year comparison, the state’s foreclosure rate outpaced the nation with a whopping 146% increase vs. 94% nationwide.
Since these loans were banned in the state in 2005, North Carolinians have suffered more utility service disruptions, bounced checks and bankruptcies. Despite these alarming statistics, Eakes and his fellow activists are pressuring other states, Virginia and Ohio in particular, to ban short-term consumer lending.
When public policy is based on emotion and not sound fiscal principles, personality and bad judgment often play critical roles.
Who, then, really benefits from payday loan bans? Credit unions, for one, notes Morgan. He says that interest rates on overdrafts charged by credit unions and banks can exceed 2,000%, dwarfing the high interest rates on payday loans. Credit unions, he adds, have been especially hurt by payday lenders cutting into their overdraft fees–bounced-check revenue at the typical credit union can amount to 60% of net operating income. (It’s just 18% for banks.)
In payday-loan-free North Carolina Self-Help has thrived. Its assets have jumped from $114 million in 2003 to $292 million last September. Its return on average assets is 1.4%, reports snl Financial, versus the industry average of 1.1%. Terry L. Kibbe, a former think tank fundraiser who last year started a libertarian consumer advocacy outfit, Consumers Rights League, notes that Self-Help’s high delinquency rate–it’s seven times that of the typical credit union–proves that Eakes is as bad at judging borrowers’ ability to pay back loans as anybody else. Self-Help says less than 1% of its loans ultimately default.
http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-23168675.htm
http://www.forbes.com/forbes/2008/0310/042b.html
4 richard willey // Oct 29, 2008 at 5:18 am
A PARK BENCH AS AN ADDRESS!!!!are you people crazy?what is happening to this country?Its time for people to step up .get rid of these idiot judges!!!!
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