From the AP story:

Jason Arnold, an RBC Capital Markets research analyst, said the recent aggressive stances taken by Ohio and other states against payday lending have made it tougher for the industry.

“I’m not even sure the companies themselves know how successful these alternative programs will be,” said Arnold. “If it’s profitable to operate under these other pieces of legislation, they will do it. If not, I imagine a lot of them – especially the smaller operations – will just close up shop.”

Michael Evans, 61, of Cincinnati, hopes that won’t happen. Evans, who voted against the rate cap, said payday loans have helped him through some tough times.

“These loans have let me keep some money in my pocket between paychecks when I’m running low,” Evans said. “I would be hurting if they close.”

The Phoenix Business Journal reports that “200isNoReform.com” is now “Arizonians for Responsible Lending,” yet another branch of the Center for Responsible Lending and is working to strip Arizonians of their financial choices by capping payday lending at a 36% annual interest rate. The Payday Pundit has said it once and will probably have to say it a million times…payday loans are not annual loans, they are not mortgages, they are short term, low dollar loans. Applying an annual interest rate to them is akin to trying to rent a car for a weekend and the agent telling you how much it would be to buy the car. It makes absolutely no sense.

So many employees of the payday lending industry in Ohio fought hard for their jobs and for their customers.  Everyone of you has more sense and smarts than the legislators who voted to kill the industry in the state.    This letter in the Youngstown Vindicator is typical of the many letters to the editors, emails to legislators and phone calls from employees over the last few weeks.

Ohio law kills payday loans

EDITOR:

Ohio House Bill 545 capping payday lending rates at 28 APR will close all payday lenders and put 6,000 Ohioans out of work. It will also leave hard working people no place to turn for a short-term loan. I am sure, if the members of the House and Senate spoke with our customers, their constituents, and actually listened to the masses, they would have a better understanding of how payday lenders can help our communities.

I am the Consumer Service Supervisor of Cashland Financial Services in Hubbard. Our customers come to Cashland for help for those unexpected expenses that hard working people can’t seem to get away from, i.e. car repairs, medical bills, and high utility bills or gas needed for driving back and forth to work. These are people with families and home mortgages who are struggling in the current economy and living from pay to pay.

Others use our services to counteract overdraft fees charged by their banks. They would rather pay Cashland $15 per $100 borrowed than pay a bank $37 or more for a bounced check.

People borrow from payday lenders like Cashland because, for many of them, there is nowhere else they can go to get the short-term loan they need. They come here because we are courteous and respectful and our services are private. We help ease their burdens; we don’t create them.

H.B. 545 (which has now been passed by the House and Senate) will not only close down payday lenders and put 6000 people out of work, it will close down the only means most hard working people, like myself, have for dealing with the unexpected expenses they incur.

KIMBERLY MANSELL

Hubbard

This article gives a good update on the status of legislation in Ohio.  Key passage:

It’s the Senate committee’s third hearing on the issue, with a fourth hearing on the schedule for Wednesday afternoon but no testimony scheduled.

The House bill included not only the interest cap but also a limit of four payday loans per year per customer.

Phyllis Riccadonna, who has operated America Check Exchange locally since 1997, said there are other solutions that weren’t included.

“I’ve been in this business since 1997. I opened the first payday loan shop in the entire Ohio Valley,” Riccadonna said. “The 28 percent cap would put us out of business. There is no ifs, ands or buts about it. It amounts to a charge of about a dollar per loan.”

State Treasurer Richard Cordray said in a recent interview that the current loan rates charged by the payday lenders in Ohio amount to about 391 percent annually, but Riccadonna said a better solution would be a return to tighter caps on loan amounts, not interest.

At a conference held today in Washington, D.C., a report including reccomendations for addressing the “culture of debt” was released.

CFSA President D. Lynn DeVault had this to say in a press release:

“While the intentions are good, the recommendations in the report demonstrate the complexity of small-dollar, short-term credit offerings and their costs.  So-called ‘solutions’ such as annual rate caps would eliminate not only payday lenders, but also the model credit union alternatives described in the report as well.”

“Those who don’t understand a free-market think you can wave a magic wand and new services and products are created. The truth is, payday lenders already compete with banks, credit unions and other financial services. The market is driving the price down to its lowest cost. Knee-jerk reactions, such as imposing annual interest rate caps, eliminate services, reduce competition and restrict consumer choice.

Pointing out the contradictions in the report, DeVault refers to two of the report’s recommendations: build new thrift institutions and reform laws to impose 36% APR caps on all loans.

The GoodMoney payday loan (listed as a model payday loan alternative in the report) comes with a fee of $9.90 per $100 borrowed for the two-week period, equating to a 252% APR. DeVault says, “”Even the ‘model’ payday loan alternative could not be offered under the annual interest rate cap they are advocating.”

When asked if the Columbus, Ohio station’s viewers support the efforts,  a total of 1,095 people voted. 

Of those, 49% (546) voted “no” to restrict interest rates; 48% (530) voted “yes” to restrict;  and 1% (19) were undecided.

So begins the headline of this story out of Ohio:

Business owners like Phyllis Riccadonna, who runs America Check Exchange in Steubenville, are fighting back against the caps, saying it will kill them.

“It shuts everybody down,” said Riccadonna. “They’ll be 7,000 employees out of work, and they’ll be 1, 600 stores in Ohio empty.”

The Payday Pundit will provide live updates from the statehouse rally beginning at 11:00.

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.”

Interesting discussion on a the Volokh Conspiracy blog prompted by a column, “In Defense of Usury” in the Wall Street Journal by Dean Karlan and Jonathan Zinman. 

Several of the commenters raised the challenge that nothwithstanding the authors’ conclusions, very high interest rates are still “immoral” and should be banned. But I don’t really follow the logic of the critique–if there are no externalities, and those that borrow are better off as a result, what exactly is the argument for why high interest rate loans are immoral and should be prohibited?