This statement from Dollar Finanicial, which has 1,454 stores in the U.S. and abroad, was just released: 

Jeff Weiss, the Company’s Chairman and Chief Executive Officer, said, “Though we are generally supportive of sensible regulation which helps to create a fair marketplace, this decision by the Ohio Senate is an exception as the new law significantly hurts our Ohio-based customers by eliminating access to a short-term credit product This legislation denies consumers a cost effective choice for their short term credit needs and will force them into costlier bank fees and unregulated lending.”

Mr. Weiss continued, “From a business standpoint, this legislation will have minimal impact to our operations. Our total net fees from consumer lending revenue in our 21 multi-product stores in Ohio were approximately $584,000 for the third quarter of Fiscal 2008 which ended March 31, 2008, or less than 1% of our total consumer lending revenue. That said, we will continue to evaluate our strategy in Ohio on an ongoing basis, and continue to work with our customers, legislators, and other industry members to ensure that our customers have access to short-term credit solutions. Our product offerings are highly diverse and we will continue to provide a variety of alternative products such as check cashing, bill pay, Western Union services, and pre-paid debit cards.”

The Bloggers Network conducted this online interview with the head of the Ohio Association of Financial Service Centers, Jamie Frauenberg.  Jamie, who is also a Sr. VP at CheckSmart, has been on the front lines these past weeks in the “battle of Ohio.”   From the interview:

If the Payday Loan industry disappears, where will people with no credit go?

Customers use payday loans to avoid other fees or less desirable alternatives. They choose between bouncing a check or overdraft protection, incurring late fees on routine bill payments, borrowing from friends, family or church, taking out a cash advance on a credit card, using an online lender or taking out a payday loan.  All of these products have a cost associated with them.

Eliminating payday loans just forces people to chose alternatives they had previously tried to avoid.

Recent studies have shown that without payday loans, customers bounce more checks, complain more about lenders and debt collectors, and file for Chapter 7 bankruptcy at a higher rate. One survey found some customers had utilities disconnected, went without a prescription medication or ended up with a damaged credit rating.

In each case, consumers may have been better served by payday advances, which often offer lower fees and do not negatively impact credit ratings.

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.

Today’s News-Herald carried a great editorial on Ohio legislation:

It can happen to anyone, at any time. Maybe a sudden car repair. Perhaps an emergency at home. It could be a medical problem.

You need cash now.

Family and friends can’ t help, so you head for the local payday lender.

But, if a bill that passed the Ohio House of Representatives last week becomes law, they won’t be able to help much longer.

***

We applaud the bipartisan effort, but wonder if the Ohio House went too far.

Payday lenders – about 1,600 stores statewide – had 2,000 people rally Tuesday at the State Capitol in protest.

They’re angry because the bill would eliminate about 6,000 jobs in Ohio.

This industry is shrouded with mystery, offering short-term solutions for those with bad credit. In this economy, it’s inevitable it would be looked at with skepticism.

But the bill’s focus evolved from adopting tighter regulations to closing the businesses.

That shouldn’t be the General Assembly’s intent.

Mike Sussman appreciates the fact the payday loans are completely undertstandable as opposed the his incomprehensible credit card statement.       His column in the Newark Advocate concludes with this:

I have spent most of my life in the lending and lending subsidiary business. It has been my experience that banks will make ridiculous loans to questionable business entities at low rates of interest while denying the small borrower anything other than high interest short-term credit card loans. Please see Skybus and Enron.

Payday lending, while expensive, is the last line of defense for the financially overburdened low credit score consumer. Taking this option away will only increase the amount of hardship in a state already overwhelmed by foreclosure. Consumers, unlike Bear Stearns, will have nowhere to turn for immediate financing.

This piece in Oregon’s Stateman Journal on poverty is a must read.  Author Bina Patel examines the issue of wealth creation and the relationship between government policy and poverty. Money quote: 

Closing payday lending businesses, intended to protect the poor from entrapment in cycles of debt, eliminates their last possible form of available credit, leaving many struggling to handle unexpected crises.