Wallet Pop’s newest post details the state of the industry today.

He notes that in Oregon, a 36% annual cap was put on the payday lending industry, and 80% of the stores closed up and went out of business.

Payday Pundit especially likes the first comment posted in response, “I enjoy seeing states tighten credit in the middle of a credit crisis – it reinforces my view that politicians have no clue what they’re doing.”

Update: thanks to a reader for pointing out that “In Oregon it’s a 36% annual rate cap plus a $10-per-$100-borrowed loan origination fee. If it was just a 36% annual cap, like they’re proposing in Ohio, 100% of the payday loan stores would have closed.”

Thanks to David Martin for the hat tip to this great post from the NaugBlog’s Matt Naugle on payday lending legislation in Ohio.

391% is VERY misleading, as pay-day loans are supposed to be PAY-DAY LOANS… Which means an advance on a paycheck from an employer in two weeks. The actual interest rate is 15% (Get out your calculator: $15 is 15% of $100), which is quite reasonable, especially when you consider the risk these companies are taking by giving money to people who need short term loans.

So what will the legislature and Governor do by passing this law? They will decrease the availability of payday loans, which will put more hardships on working class people who might have an emergency need for a short term loan. So this will encourage more use of credit-cards and possibility bouncing checks, both options include hefty late-fees and serious fines.

This is just another example of the growth of the nanny state. The legislature needs to keep it’s grubby hands off of the payday lending industry and stop making more decisions for consumers. People, and not government, should be trusted to know what each person’s financial situation is and people who take out payday loans clearly know they are only for short term emergencies and understand the cost of delaying payment.

And if this law really puts 1,600 stores out of business, then this is one more example of Ohio’s government making Ohio’s business climate more unhealthy than it already is. Maybe if they would stop passing so many stupid laws, then more Ohioans could have better paying jobs and avoid short term emergency loans in the first place?

In a piece co-authored with Tom Schatz of Citizens Against Government Waste, David Hansen, President of the Buckeye Institute offers some payday opinions in the Hillsboro Times Gazette today.  Money quote:

Ohio taxpayers should be wary when politicians begin picking winners and losers in any marketplace. Their new target in Ohio and in other states is the payday lender industry, even though private sector payday loans are a legitimate business with tens of thousands of employees across the country that help provide a proportionate remedy to meet the short-term financial needs of millions of working customers.

The payday lending industry has many supporters at think tanks and universities.  Scholars who crunch numbers and actually know the facts understand payday loans are a viable and important alternative to bounced check fees, overdraft protection, and other costly services.

Saturday’s Columbus Dispatch sums up the state of play in Ohio.  Here’s the meat of the article regarding the status of legislation: 

   Three payday-lending bills have been debated in Widener’s committee for months. He took some parts of those bills and added new wording that doesn’t change the current annual interest rate of 391 percent ($15 per $100 borrowed on a two-week loan), but lets customers extend any two-week loan by at least 60 days.

The bill would limit borrowers to holding no more than two payday loans at once, does not allow borrowers to have more than $500 total in such loans, and requires a financial-literacy class for anyone who wants to take out three loans in 90 days.

The governor, Ted Strickland, indicates his support for a 36 % rate cap in a letter to Ohio Coalition for Responsible Lending.  

If I could, I would ask the Governer to explain how taking a credit option away from consumers helps them.

Finally!  Someone who “gets” it.

From this morning’s Bob Franz show on WTAM 1100… 

“As long as you are up front and you tell people, you said you’ve got poster size, not fine print, in fact its great big bold faced, poster sized listings of your fees up front, anybody who walks in there knows full well what they are going to be charged. If they choose to sign on the dotted line and they agree to those terms, then why should the government be getting in the way at all?  Why should they be trying to regulate how much you guys can make, regulate what interest you charge regulate any of your fees or anything else? If they are spelled out and people choose to do it anyway, I don’t understand how they can blame Checksmart or any of the others.”

Referencing CFSA’s mandated extended payment plan, Franz says, “Am I the only one that finds that extraordinarily generous?”

Franz speaks to a rep of the Community Financial Services Association, customers that have used the service and an employee of the industry. 

Listen to the program at http://www.wtam.com/pages/bobfrantz/ondemand/. In the first hour, payday lending coverage starts 18 minutes and 30 seconds in.  In the second hour, coverage starts 9 minutes 15 seconds in.

This editorial in the Greenville, SC newspaper sums up the state of play on payday lending legislation in the state.  The Payday Pundit doesn’t now enough about the legislation to comment intelligently on it, but I’m struck by the fact that the editorial used the word  ”reasonable” twice in referring to restrictions.

Do editorial writers really know enough about finance, economics and lending to know what’s “reasonable?”  The word “reasonable” is often invoked by debators to make whatever they say sound less extreme.

The Wheeling News Register calls for one.   Money quote:

    “….lawmakers need to achieve a reasonable balance between making life more difficult for lenders — and doing the same thing for borrowers.”

That’s what this article in the Denver Post says of the Colorado payday lending legislation.   The  coverage  fails to mention that an effective ban on payday lending would have done nothing to help consumers in Colorado.  Consumers are best off when they have all the necessary information and are able to make financial decisions based on what’s best for them.  Banning a credit option is not “protecting consumers.”

Rocky Mountain News: Payday loan bill languishes due to Veiga amendment

A legislative attempt to place restrictions on the state’s payday lending industry appears dead as the bill languishes in a Senate committee.

House Bill 1310 sought to restrict or eliminate most of the fees and set a maximum interest rate on payday loans. Backers of the bill said it would end payday borrowers’ “cycle of debt.”

The bill ran into trouble from the beginning, with opponents saying payday loans are cheaper than bounced checks or other late fees. The payday loan industry argued the restrictions would effectively put it out of business.