CFSA Press Release:

Consumers Denied Choice, Jobs Threatened as Ohio Senate Votes to Ban Payday Lending

Legislators Play Politics, Ignore Tens of Thousands of Ohioans 

Washington, D.C. – Ignoring the pleas of tens of thousands of customers and employees, Ohio Legislators chose instead to vote today to ban payday lending in Ohio, said the Community Financial Services Association of America.

Expressing outrage over today’s Senate vote, D. Lynn DeVault, CFSA president, said “There was absolutely no public clamor for this legislation. In fact, tens of thousands of payday lending employees and customers were ignored by legislators, who listened only to the editorial writers and elitist consumer groups.”

HB 545, which passed the House two weeks ago, places a 28% annual percentage rate cap on payday loans, reducing the allowable fees to less than 10 cents per day.  

“Operating under HB 545 is not economically feasible,” said DeVault. “Our member companies say they expect stores to close and jobs to be lost.”

DeVault said the Senate has asked lending companies to create a new business model that would allow them to continue making small-denomination, short-term loans available in Ohio. “Companies are doing their due diligence to see what options may be available under current law,” said DeVault, “But we are not hopeful. If companies are forced to operate under HB 545, they cannot. 

“Ohio’s Legislators do not understand the impact of what they have done,” says DeVault. “Our industry worked with lawmakers in good faith to forge a compromise that would protect consumers and preserve their access to credit.  We now appeal to Governor Strickland to do anything he can to lessen the human impact of this over-zealous action.”  

 Independent research has shown that without the option of payday lending, consumers bounced more checks, filed for more bankruptcies, did not pay bills and even choose such dangerous options such as forgoing prescription medications. 

A recent Zogby survey found 84% of likely voters in Ohio believe citizens should be free to make their own decisions about what kind of credit they can use, and 70% said the government should not be in the business of telling adults they cannot get a payday loan.

“Unfortunately, legislators did not listen to consumers surveyed in the poll, nor to employees begging for their jobs or customers asking where they would turn without payday loans,” said DeVault.   

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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.

The Center for Consumer Freedom had this to say in response to an anti-payday lending editorial in a Missouris newspaper:

Borrowers are best served when they have more choices to pick from, not when politicians eliminate what is for many their only option.

The full letter is here. 

 A letter to the editor from Tommy Moore can be found on the Chicago Tribune website.  It’s recommended reading:

Consumers have a right to determine their own financial destiny and make their own choices for what’s best for their financial situation and their families.

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.

So says John Berlau of the Competitive Enterprise Institute who weighs in on the payday lending fight in Ohio in a guest editorial in the Lima, Ohio newpaper. 

More from the piece:

        Evidence is already mounting from other states that caps on payday loans reduce choices for consumers and leave them financially worse off than before. And, ironically, the main beneficiaries of laws pounding on payday lenders have been big banks and credit unions making millions from the overdraft fees that frequently serve the same purpose as a small loan for unexpected circumstances.

Mr. Berlau has it exactly right.  Payday loan customers are frequently trying to avoid bounced check fees which if calculated as a loan would have three or four times the interest rate of a payday advance. 

Kurt Davis, a law student at the University of Virginia, has a profound column in the Virginia Law Weekly.   He essentially argues that there is wise debt and bad debt, good consumer choices and bad ones.  He opposes regulation, but encourages financial literacy and a balance between savings and debt.

While Mr.  Davis’s piece is mostly about the housing crisis, some of what he says has relevance to the payday lending debate.  From the piece: 

“While bad times may increase urgency and force quick reaction, paternalism should not be the medicinal remedy for any situation. In its best-case scenario, it would stop some Americans from unwittingly entering into situations that will hurt them in the end. At the same time, it will severely limit those Americans who wittingly play the American market to their advantage through smart investments.”  

The  Payday Pundit agrees.  

From Daily Kos, “Hillary doesn’t think Obama is elitist, neither does she think he is out of touch with working class Americans. At least no more so than she is herself, or McCain is, or any politician that isn’t living paycheck to paycheck is.”

According to Wikipedia, “Elitism is the belief or attitude that those individuals who are considered members of the elite — a select group of people with outstanding personal abilities, intellect, specialized training or experience, or other distinctive attributes — are those whose views on a matter are to be taken the most seriously or carry the most weight; whose views and/or actions are most likely to be constructive to society as a whole; or whose extraordinary skills, abilities or wisdom render them especially fit to govern.”

When it comes to payday lending, the question, put simply, this: do you believe that adult Americans are capable of making a reasonable decision about financial services products when they are presented with clear, understandable and truthful information about the costs of those products?  And are they better off for having these choices?

For the elitists who are calling for a ban, the answer is clearly no. They side believe that average Americans may not be smart enough or sophisticated enough to make their own choices, and therefore it’s up to government to deny them those choices for their own good.

Payday Pundit thinks that is un-American.

The Tribune newspaper of Greeley, CO carries a guest piece today on payday lending legislation by Michael Hough, director of the Commerce, Insurance and Economic Development Task Force at the American Legislative Exchange Council.    Hough says:

“This misguided legislation assumes that the majority of Coloradans are unable to make appropriate financial decisions without the state intervening on their behalf with heavy-handed government regulations. Colorado lawmakers should reject this legislation because it will financially hurt the state’s residents and deprive them of the freedom to take out a payday loan if they so choose.”

The Center for Consumer Freedom responds to a recent editorial in Kansas’ Witchita Eagle.

“…The Eagle editorial ignored these critical facts while narrowly focusing an ad hominem critique on the payday industry alone. These lenders earn a mere fraction of what traditional banks make on service fees. In 2003, bounced-check and insufficient-fund fees generated $22 billion in bank revenues, which was equal to 18 percent of banks’ net operating income. The banking industry brought in an additional $57 billion in late fees.

“Vulnerable Kansans” are best served when they have the ability to bridge temporary stress in their budget. Instead of restricting payday lenders, government should focus on making sure consumers have the ability to choose the best borrowing option for their needs.