Ohio Senate Passes Strict Lending Legislation, Prepares To Punch Payday Lenders In The Face

The ass-kicking, face-punching anti-payday lending legislation that we’ve been keeping an eye on in Ohio has passed the Senate. The Columbus Dispatch says:

House Bill 545 would slash the current interest rates charged by payday lenders to 28 percent, down from 391 percent, prohibit loans terms of less than 31 days, and limit borrowers to four loans per year. It would ban Internet payday lending, and it also attempts to encourage lenders to get into the small-loan business.

Payday lenders say the bill would quickly put their 1,600 Ohio stores out of business and 6,000 employees out of work. One industry lobbyist estimated that fewer than 150 stores would remain in Ohio, as some also offer other services, such as pawnshops or check cashing.

“This will, without a doubt, close the industry,” said Tiffany Verderosa, a Toledo-area manager for Fast Cash of America.

It seems that Ohio has finally had enough of the rapidly expanding payday lending industry: ““I think everybody said there is just no way to redeem this product. It’s fundamentally flawed, and it all too often traps people in a cycle of debt they can’t get out of,” Bill Faith, a leader of the Ohio Coalition for Responsible Lending, told the Dispatch. In the past 11 years, payday lending in Ohio has grown from a mere 106 stores to more than 1,600 today.

Senate approves tough payday-lending bill [Columbus Dispatch] (Thanks, Andrew!)
(Photo: eyetwist )

Comments

Edit Your Comment

  1. Tux the Penguin says:

    1. At 28% interest, no other lenders are going to get into that business. Like it or not, these loans had a market. Now that market will disappear. So, for once, the poor and minorities will ACTUALLY be hit hardest.

  2. howie_in_az says:

    I predict more people taking out loans from their banks and then defaulting on those, causing the banks to further tighten lending standards and simply not lend monies to anyone with a credit score lower than 620.

    I also forsee Ohio passing stringent laws on other things that don’t need laws, like drinking paint or holding ones breath for more than 6 minutes.

  3. henwy says:

    You can’t help but wish people weren’t so stupid when you read stuff like this. If they would only make sensible decisions and use their brains, legislation like this wouldn’t be necessary. I’m sure there are instances where a payday loan is actually the best choice out of a series of bad options just like having credit card debt is somethings unavoidable.

  4. midwestkel says:

    Thats my home state for you, always kicking ass in everything!

  5. Maurs says:

    Headline from the future: Payday lenders popping up on the borders of Ohio as loan seeking refugees flee the state!

  6. spoco says:

    needs to happen here in Mississippi.

  7. thegirls says:

    @Tux the Penguin:
    What do you mean by -
    “So, for once, the poor and minorities will ACTUALLY be hit hardest.”

  8. Tux the Penguin says:

    @thegirls: There’s an old joke that the the traditional media would run a story “World to End Tomorrow: Poor and Minorities Hit Hardest”

  9. Pylon83 says:

    @thegirls:
    He means they will now have NO way of getting money in a pinch (car breaks down, kid gets sick, etc.)

  10. Bladefist says:

    @Tux the Penguin: While pay day loans are a huge rip off, they are vastly important to people with money problems. I think the interest rates they charge are criminal, but, it keeps food in the bellies of people waiting for their paycheck. It’s unfortunate that payday loans have to be like that, however, I don’t know why the government is getting involved. Some regulation as to turning the ‘fine print’ into huge bold font 72 print, I could understand, but this, seems like it’s going to hurt some folks.

  11. Kajj says:

    @Tux the Penguin: For once?

    It would be interesting to see research on what people spend their payday loans on. I’ve heard the less charitable among us assert that people are spending the money on Xboxes and other inessential items, but I doubt that’s a huge percentage of the market. I support Ohio’s decision here, but I think they should try to figure out what it was payday loan customers needed help with, and come up with other means of support besides predatory lending companies.

    Paying rent? Medical bills? I bet emergency car repairs are a big one, and for the snide off-the-gridders with inexplicable internet connections who sometimes post on this site, a car is not a luxury for any non-urban person who wishes to remain employed.
    It’s a good first step, but payday lending was a symptom, not the disease.

  12. sean98125 says:

    People got by before these places existed. They’ll get by without them.

  13. QabilBroadway says:

    The idea that Payday loans are legitimate financial tools and that
    people should be allowed to borrow money at 391% interest is the same
    thinking that helped pave the way for the subprime mortgage mess. They
    encourage spending money one doesn’t have. When used for necessities
    like car payments borrowers begin digging a hole that many cannot get
    out of and can land them in worse trouble. The high interest rates
    reflect that any schmuck can get a pay day loan. Now lenders may have
    to assess risk rather than mitigating it with sky-high fees. Boo hoo…

  14. azntg says:

    I think that payday lending is really is a damned if you do and damned if you don’t thing.

    Damned if you do: Stuck with exorbitantly high rates and fees plus vicious lenders as a bonus (especially if you default)

    Damned if you don’t: Banks won’t give you a loan. You’re already knee deep in debt. Looks like your only choice is to live a more spartan life or die trying to live the way you are right now.

  15. Nighthawke says:

    Also, they didn’t mention if their employees were part-timers earning barely above minimal wages, or otherwise.

  16. thegirls says:

    @Kajj:
    That what I was getting at as well.

    It’s a fact-
    Poor and minorities are the ones that are often hit the hardest!
    Not some “traditional lefty media” sky is falling thing!

  17. laserjobs says:

    We should see soon enough how the banks are going to profit off this regulation. For sure the banks have been the ones lobbying for it. My guess is the state will some how backstop any losses if the banks get into this. I can almost guarantee the banks win and the taxpayer loses on this one.

  18. thegirls says:

    @azntg: Not just inability to get a loan. If you don’t have enough income to cover the minimum rate for a bank checking account, you can’t get a bank account…Or even more common these days, areas where poor and minorities often live have less and less community bank branches in those areas, so these check cashing move in and rip them off!

  19. stinerman says:

    @laserjobs:
    I’m still waiting for some evidence that banks are either behind the legislation and/or are wanting to get into the payday loan industry.

    I don’t know of any bank who wants to service such high-risk customers. As others have said, at 28%, there isn’t a market for the service.

  20. stinerman says:

    My state did something good for once! This makes me want to sing!

    Drive! Drive on down the field;
    Men of the scarlet and gray;
    Don’t let them thru that line,
    We’ve got to win this game today,
    Come on, Ohio!
    Smash thru to victory,
    We’ll cheer you as you go;
    Our honor defend
    So we’ll fight to the end
    For Ohio.

  21. Why is this bad?

    Really need money in a hurry? There is always an advance on one’s paycheck from one’s employer (yes some companies still do that at pretty low interest rates). Or maybe call a friend or neighbor. My church has a fund for member’s emergancies. See there really are resources without paying 391% interest.

    And if you must have one of these commercial for-profit payday loans what harm is it for the state to cut the interest rate from 391% down to 28%?

  22. burgundyyears says:

    Woohoo! I’m moving south and getting the lead on the new loan business:

    burgundyyears’ loans: We break legs.

  23. AD8BC says:

    @Bladefist: I’m doing internal battles over this one, Blade. In the end, I agree with you though.

  24. Geekybiker says:

    In the short term is will suck for the people hooked on the cycle of easy expensive credit. However I think it will be better for them in the long run as they won’t be able to accept incredibly dumb loan terms.

    I’m kind of shocked at how people here think that getting loans and credit is some kind of right? People who have a poor history of credit use shouldn’t have access to any easy credit. Want credit? Do it the slow hard way and prove yourself through secured credit cards, and paying bills on time. Payday loans are all about taking advantage of dumb people, not helping out the poor and minorities.

  25. unpolloloco says:

    Why is it the state’s duty to protect people from themselves? People who go to payday loan places know how much it will cost them, but they need the money in a hurry, so they do it anyway. Preventing people from taking advantage of others’ unfortunate circumstances is good. Taking away their only possibility for help is downright criminal.

  26. Snowblind says:

    In other news… Ohio pawnshop owners rejoice!

    Grafters always find a way.

  27. The Big O says:

    Heh heh…having worked for the company that makes the software that Fast Cash uses, good riddance.

    Freaking industry is a piece of garbage.

  28. thegirls says:

    @stinerman:
    Finance companies may by expanding their services some. Although they’re now often part of a banking corporations umbrella….but places like HFC and American General cater to people that aren’t considered “bank quality” customers.

  29. Krobar says:

    As someone who made the mistake a couple years ago of thinking these places were a good idea, and now works in the banking industry and sees how bad they mess up people’s lives, I have to agree, good riddance.

  30. Gann says:

    @Geekybiker: Agreed. This is a painful, necessary move in the right direction.

  31. uberbucket says:

    Finally, all the old school loan sharks can get their jobs back!

    They of course are providing a needed service doncha know…

  32. whydidnt says:

    Well, if this is truly a hardship to those who need it, they can certainly vote for new representatives in the next election. While I think their certainly is a need to reign in these payday lenders, I think the new law probably goes too far. Not unusual, though, we often see these over corrections when Government is passing laws.

    I haven’t seen the regulation, but I predict Lenders will get around the usury limit by imposing “pre-payment” penalties. They’ll borrow you $200 with a 6 month payment schedule and charge you $25.00 if you want to pay off early. Then they’ll have a policy of only one loan per person, but gladly roll your penalty and remaining balance into the next advance.

    It would have been much cleaner if the law would have just allowed the small lenders to make a reasonable profit on the advances. I know 28% sounds like a lot, but that is an annual rate, and so if the loan is paid off in a month it’s really only a little more than 2%. On $200, that’s just $4.00, and it probably costs the lender more than that to print the agreement and do their own banking.

  33. ARP says:

    What’s to prevent them from charging a huge “origination fee” or simply fee them to death like any other bank or airline?

  34. induscreed says:

    the heading reminds me of “want me to punchsize your face for free”, anyone guess what movie this is from?

  35. wfpearson says:

    I just have to ask, when payday lenders are gone where are broke people supposed to borrow money? Should we just let them get evicted/forclosed/repossessed? Not everyone deals with a bank. Where are they supposed to go?

  36. spinachdip says:

    @Tux the Penguin: “So, for once, the poor and minorities will ACTUALLY be hit hardest.”

    About time. The poor and minorities have had it way too easy. It’s time they gave up their champagne-and-caviar lifestyle.

  37. darabidduckie says:

    @spoco: Amen to that, the blasted places are popping up all over the place around here.

    Those companies are just legal loan sharks. I’d prefer that they get an outright ban, but opting to offer them a chance to become legit and fair small-loan businesses is a fair compromise.

  38. plustax says:

    @ARP: I believe if they charge any origination fees or any other charges it has to be disclosed as a finance charge that would be used to calculate the APR on the loan. So that would not work.

  39. humphrmi says:

    @plustax: You are correct. Even mortgages with points have to disclose the “raw” interest rate and the rate with points / fees. Limiting that second rate (if that’s what this law does) includes fees.

    Count me in with the others bidding good riddance to payday lenders. Sometimes the solution that helps people more is not the one they want. People will learn to get along without predatory loans. And I disagree that this will end the micro lending business in Ohio. Someone who is smarter than the current blood suckers will figure out how to make it financially feasible and will make a small mint without dooming the low income to indentured servitude.

  40. hegemonyhog says:

    Living in Ohio, I love the pro-payday lending loan commercials.

    The origination fee on a $100 loan is lower than your overdraft fee or late payment fee!

    Even they can’t deny that a payday loan is a tacit agreement for punishment.

  41. pigeonpenelope says:

    on one hand, I don’t want a big brother government and, well, stupid is as stupid does… however, I am concerned that these payday lenders are leaching money from the economy.

    payday lenders are awful and once you get in, its hard to get out. I’d like to see them go out of business but I’d prefer them to go out because consumers wisened up–not because the government stepped in.

  42. Good. Bye-bye Fast Cash of America, and good riddance!

  43. spinachdip says:

    @pigeonpenelope: The thing is, desperate people simply don’t make rational decisions, and people who are desperate enough to see payday lenders as a viable option obviously won’t make decisions that are in the best interest of their own long-term finances or the economy as a whole. Your politics aside, pragmatism has to trump ideology.

  44. mythago says:

    “Rational” looks a whole lot easier when you’re a person in the income bracket to, say, sit around posting snarky comments on the Internet.

    If your choices are usurious loan vs. keeping the power on, or buying a bus pass so you can get to work and not lose your job, the “rational” choice is a lot harder.

    I love all the whining about how this really screws the poor. You hear it everytime some business stops being able to rip off an essentially captive audience for profit.

  45. timmclargehuge says:

    Thank God.

    I hate those places. If you can’t make money on 28% interest then you’re in a business that’s predatory.

  46. spinachdip says:

    @mythago: I’m not sure if you’re responding to me (I’m the only one using the word “rational” in this thread), but for the record, I am glad they’re stepping in against the predatory lenders, and the idea that this is government being all Big Brother is silly, if not dangerous when enough people believe in the mythology.

  47. humphrmi says:

    I’m sorry but income bracket has nothing to do with it.

    Borrowing money to pay bills, whether you are rich or poor, is a stupid way to resolve your problems (and in fact, it won’t.)

    And I don’t want to hear about “The rich don’t have to borrow money”… blah blah blah, there are stupid rich too who borrow far more than they own in order to keep up appearances.

    I too would love to see these sharks go the way of the do-do bird by sheer force of the market. Even Milton Friedman, who by the way espoused free markets that were driven by rational participants. Rational participants have all, or at least as much, financial information available to them – such as, for instance, how much the loan will cost them in total, the effective interest rate, etc. and would also understand the likelihood of being able to repay that loan with their next paycheck, and if they were not able to repay it, how much more it would cost them. Only then are we operating in a “free market” by letting the payday lenders run amok. Until then, we’re nowhere near a free market, the lenders control the market, and government intervention is acceptable. And yes, even Friedman espoused government intervention when appropriate.

    It’s ok to be a free market advocate and still support usury laws.

  48. Broke4Real says:

    Go Ohio! That’s what I am talking about. Why spend the money when you don’t have the ca$h on hand? People who’re getting laid off will be taken care of by Ohioans, you don’t worry about that. They will be the most successful people tomorrow and guess what you will be knocking on their door. I am glad someone in Ohio had the guts to stand up against these fake hot dog sellers. Go Ohio!

  49. u1itn0w2day says:

    laserjobs has a very good point in how are the banks going to profit.

    Every now and then they try to eliminate the check cashing places and sure enough you wind up seeing a lobbyist for banks.The banks have the most to gain,even if you are ‘high risk’.Try getting a bank account without interest and/or fees AND yet they have possession of your money to make interest on.Won’t even go into minumum balances.Times that by THOUSANDS of customers per day and those deposits/dollars ADD UP.And yet the banks cry and gouge as well.

    Too me the rates are price gouging but unfortunetly there is a market for these places.Maybe some usery laws but not banning them.

  50. Derp says:

    The commercials playing here against the bill are sweet.

  51. Optimistic Prime says:

    @Derp: And they’re everywhere. Kinda makes me sick…

  52. Erwos says:

    Those high interest rates are what enabled these places to lend to these bad credit risks in the first place. Hearing people talk about how these folks are going to borrow from other better avenues is a hilarious pipe dream.

    Believe me, this is going to wind up as another example of government regulation’s unintended consequences.

  53. grimshaw says:

    We here in Manitoba (Canada) saw a similar legislation pass in late 2007. So far the lenders are still out there, although a few months isn’t necessarily enough of a gauge to determine whether it will affect the viability of the industry.

    [www.cbc.ca]

  54. @Snowblind: Pawnshop loans are at least backed by something, and I haven’t heard of a pawnbroker charging the kind of interest rates payday lenders did.

  55. WhirlyBird says:

    @Corporate-Shill: “what harm is it for the state to cut the interest rate from 391% down to 28%?”

    The fact that these loans have a 35% default rate, for starters. When insurance companies have high losses, they get to raise their rates to cover those losses. When payday lenders have losses, they’re told to fuck off and go out of business, because charging their customers enough to cover their losses isn’t ethical.

    I like these laws, because it screws the consumer, and pissing off a large portion of the populace is an effective way to bring about change.

  56. I can’t believe people are actually defending the payday loan industry here. These people are legitimized loan sharks, and they need to be put out of business – all 6000 of them. The fact that there are 6000 Ohioans sitting behind desks in these places across the state, where you might have one or two per establishment at the most, really says something. These places are a blight on the landscape, and most sane people will not mourn their passing.

    This is, believe it or not, government actually doing the job it is being paid to do, namely, protecting people who need protecting. You so-called “libertarian” bozos who think the whole United States should be like Deadwood in the 1880s really ought to have your heads examined because you’re all stark raving nuts.

  57. WhirlyBird says:

    @Steaming Pile: Exactly. They don’t charge high interest rates for pawns, because they’re *secured* loans. When people default on pawns, the lender can sell the goods to recover their money, so they don’t *have* to cover their losses with high interest rates. That’s exactly why banks won’t touch most payday loan customers – no bank is going to give an *unsecured* $500 loan to someone with a non-existant credit rating.

  58. WhirlyBird says:

    @Steaming Pile: “most sane people will not mourn their passing.”

    Spoken like someone who qualifies for a bank loan. Try raising three kids on $19,000 a year, and let’s see how sanguine you are about the dearth of available financial options for low-income losers.

  59. stupidjerk says:

    @laserjobs: I’m pretty sure the banks (in most cases) are the ones financing these types of businesses. Kinda like a back-room poker game.

  60. @WhirlyBird: Yeah, because I want to be held in debt slavery be a loan shark with my government’s blessing.

  61. timmclargehuge says:

    @WhirlyBird:
    Payday loans don’t make it any easier to raise three kids on $19k. They make it tougher.

  62. Tickthokk says:

    One of my ex girlfriends was caught in the hell cycle of payday loans. You can’t get out of it. I’m glad these are going away.

    Also, if you live here in Ohio, there’s some funny commercials on the radio. One has a guy going into one of these places, and a mysterious voice asking why doesn’t he go to a credit union instead. The guy reply’s “And what? Get rejected?”. I find it funny that he’s afraid of getting rejected for a 100 dollar loan from a bank (In the commercial that’s the amount he was talking about). If you can’t get a 100 dollar loan from a bank, or a friend, then I’m surprised stores even take your cash.

  63. thegirls says:

    @u1itn0w2day: As I said in an earlier thread, this is where finance companies come in (HFC, American General, etc). They don’t rape you like check cashing places do, but they do specialize in dealing with higher credit risk clients…so they may be able to pick up this niche.

  64. lol_wut says:

    To the people that are trying to support three children on $19k/year – you would qualify for state aid at that point. Don’t be ashamed you are on it – use it to your benefit and stop poking around the payday loan cycle.

  65. thegirls says:

    @sw4383:
    “Stop poking around the payday loan cycle?”

    OKAY! Cuz state aid takes care of everything…wow, what ignorance.

  66. samspot says:

    “While pay day loans are a huge rip off, they are vastly important to people with money problems.”

    Thats true, they are a great way to cause money problems

  67. shockwaver says:

    @WhirlyBird: If you make $19,000 a year, don’t have 3 kids? Condoms aren’t expensive, and a buck a #$@% is better then the thousands it costs to raise a kid. Sure, it’s a bit different if you could afford the kids, and lose your job but I see a lot of people who pop out kids because it is a “right” and they can’t afford it.

    I make roughly $20,000 a year, and I’m affording to put my wife through school.. guess what, WE DON’T HAVE KIDS.

  68. thegirls says:

    @shockwaver:
    How about people like my sister. She’s an intellegent and college educated. Unfortunately, she’s divorced with 3 kids and makes an abysmal salary.

    She rarely gets child support because her ex-husband gets paid under the table and no matter how hard she fight to get $$ from him, little comes from it….Also, every time she goes to court to fight for this, it costs her time and money for a lawyer, etc. Money she doesn’t have and time away from work that means less money in her paycheck!

    She didn’t plan this and wasn’t “careless”. I bet the average American that is struggling in the same way and isn’t just a irresponsible baby machine taking payday loans without any regards for the consequences!

    People need to stop these stupid stereotypes of what a struggling American is. It’s ignorant!

  69. timmclargehuge says:

    @thegirls:
    And she isn’t helped by payday loans at all. She just trades in one debt for an even bigger one.

  70. thegirls says:

    @timmclargehuge:
    I agree and wasn’t implying that. She doesn’t use them and I think they’re a sham.

    I’m saying that we all can’t stereotype people and their circumstances.

    It seems to be a big thing on this site.

  71. ELC says:

    @thegirls:they probably mean that the poor will “actually” be hit by this b/c 99% of the time when the media says “the hardest hit will be the poor and the seniors” it’s a crock. It’s just a typical, usually liberal, tactic to incit fear and uncertainty so that they can rely on the guvment to save them! save me, save me! I’m a moron. I don’t know how to manage money. I’m on a “fixed income” (as if most people weren’t – hello, job, salary…). blah, blah..

  72. JustThatGuy3 says:

    @Tickthokk:

    That’s just the issue – banks/credit unions _won’t_ give you a $100 loan – the size is just too small to justify the processing fees. This is also what makes the interest rates on payday loans so high.

    Think of this: you’re a payday lender, with a ZERO default rate. Nothing, nada, everybody pays on time. You have no costs other than your staff (who you pay minimum wage) and the costs of borrowing the money you lend out (assume you’re paying about 8% interest, pretty typical for securitised consumer loans at this point).

    You’re going to lend someone $100 for a month. At 28% interest, you’re going to get 100*.28/12= $2.33 in interest from them.

    On the cost side, you’re going to pay 100*.08/12=$0.67 in interest to borrow the money you’re lending, so you’re making $1.66 in profit.

    Now, you have to pay your staff. Say it takes 10 minutes to issue the loan and 5 minutes to handle the repayment, so 15 minutes total. At Ohio’s minimum wage ($7/hr), you’re going to pay 7*.25=$1.75 in labor costs to process that loan. Congratulations, you’ve just lost $0.09.

    This analysis doesn’t take into account (a) the astronomical default rate, (b) the other costs of running the business (rent, power, etc.), the fact that you have to pay social security tax, medicare, etc. etc. for your employees, and the like.

  73. humphrmi says:

    @JustThatGuy3: A financially savvy person would borrow whatever the minimum the bank or credit union offers him or her, and then use what they need and put the rest in as high-yielding interest-bearing account as they can find for the term of the loan. Then pay back the loan from the principle and interest in the savings account, and just make up the difference (between the interest you pay and the interest you earn) at the end. And I bet it still comes up to less than what the loan sharks charge.

    Of course, a financially savvy person would not turn to borrowing money to pay bills, because of course we all know that’s stupid and doesn’t solve anything.

  74. Sys Admn says:

    Even though I’m a Republican, I’m so, so glad the Dems won the last election. Short of a lying, incompetent Attorney General, they’ve managed to avoid screwing up as much as the Taft administration did.

    One company has already closed shop in Ohio (mostly PR, since the law has not taken effect yet). Another one based in Ohio is busy, since the father is suing his sons, claiming they forced him out and cheated him of millions. And he’s surprised they’re as sleazy as the business is?

  75. You hate your job but you're still working there? says:

    I know way too many people here in Ohio that abuse payday lenders and think it won’t come back to bite them in the end.

    Kudos for doing something about it.

  76. humphrmi says:

    @Sys Admn: Do you mean President Taft or Chief Justice Taft? ;-)

  77. PaydayConsumer says:

    The payday lenders are lying to Ohio voters in attempt to overturn one of the nation’s best consumer protection laws in November.

    Watch here:

    .

    The payday lobby is spending millions on TV to deceive voters and convince Ohioans that 391% amounts to financial freedom! 391% is not freedom, it’s a trap! Payday lenders need to acknowledge that their business is predicated on their ability to trap people in debt!

    Payday lending is a scourge on our families, our communities and our economy! VOTE YES ON OHIO ISSUE 5!

    [www.yesonissue5.org]

  78. Anonymous says:

    Have any of you heard of Capital One? When it comes to giving out major credit cards, Capital One is the bank that puts the most trust in borrowers than any other bank and most credit unions.
    There is a difference between “bad credit” and “no credit”. Like people with good or excellent credit, people with no credit history are clear of any negetives like collections, charge offs, or bankruptcies, or repossions. If you have very bad credit, your credit reports containt any of negetives.
    If your credit rating is very bad, Capital One is surely gonna turn you down for a credit card like all banks and credit unions. But if you have no credit history, Capital One would gladly give you a fair chance to see if are a risk or not.