Ohio Punches Payday Lending Industry In The Face, Breaks Its Nose, And Laughs

Gov. Ted Strickland, of the great state of Ohio, has signed a bill that punches the rapidly growing payday lending industry in the face. As we’ve mentioned before, the bill will cap interest rates at 28% and limits consumers to 4 payday loans per year. A typical payday loan charges around $15 per $100 borrowed on a 2 week loan, which works out to an interest rate of 391%.

“We will not tolerate individuals being exposed to exorbitant rates, which does contribute to the cycle of indebtedness,” Strickland said. In the past decade, payday lending in Ohio has grown from a few hundred stores to over 1,600. The bill will likely cause most of these stores to close and 6,000 people to lose their jobs. Ohio says these jobs aren’t worth keeping:

“We want to replace jobs that are taking advantage of people with jobs that help people,” said Ohio Senate President Bill Harris, an Ashland Republican.

The payday lenders were predictably angered by the bi-partisan effort to run them out of the state. A spokesperson for the Community Financial Services Association claimed that Ohio’s citizens had been betrayed:
“It is a sad day when the opinions of editorial writers and so-called consumer groups count for more than the opinions of the people responsible for putting lawmakers in office,” wrote DeVault.

The industry is trying to repeal the law with a signature campaign. According to the Plain Dealer they’ll need “241,375 valid signatures across 44 counties in the state in the next 90 days.”

Gov. Strickland signs payday loan limit [The Plain Dealer]
(Photo: DCVision2006 )

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  1. I’m against this, honestly. If there were no banks or other substitutes for this lending, then sure.

    But if a person is so high-risk that they can’t even get a credit card and/or manage their cash cycle well enough to come up with the money, then I think it’s fair to charge high “fees” (and whatever related APR that means) to make the loan.

    $15 on $100 is based upon the idea that 1 out of every 7 people who get such a loan will not pay it back. Would you like to be in that business?

  2. Jonbo298 says:

    Very likely they will spin the signature campaign and hit all the low income areas. Great this happened though finally. Ohio will hopefully set a standard for the industry.

    Put this thing up for vote if they want to whine so much about it. Ads will come out by the state itself showing why regular citizens should have this law. It’ll pass no questions.

  3. Manok says:

    Why can’t they operate with the 28% cap? Did they really need to charge 300% interest? What did they think would happen.

  4. SkokieGuy says:

    I have mixed emotions on this one. A business getting $15.00 for a $100.00 loan with no collateral and high risk doesn’t seem that unreasonable.

    Yes, annually it’s a staggerinly high interest rate, but how can a business exist on less? 28% annual interest, when the loan is only for a few weeks works out to pennies.

    Take $100.00 out of an ATM and you can easily pay $5 – $6 bucks in “fees”, but this is perfectly acceptable.

    Either these business will die, or like ATM machines, and airlines, they will invent non-interest fees and charges that will cover their overhead. Just a lame shell game that let’s legislators crow that they did something, with no real change.

  5. Bladefist says:

    the $15 on $100 = 391% is a little bogus.

    What is 15% of $100? $15? I love how whoever originally wrote that in a way to sound horrible. I’m guessing they looked at it from a yearly standpoint, and calculated it back, with compounding interest or something. I’m not even going to attempt to figure out how they got that #. Unless there is a shit ton more fees on that 100$. But I don’t see the fees adding up more then original amount.

    Look, its a payday loan, not a home mortgage, not a line of credit. It’s a short term loan. $15 for $100 is 15%. End of story. Quit sensationalizing.

  6. zero_o says:

    So credit card companies can still charge whatever the hell they want and like SkokieGuy says you still have huge ATM fees and people who don’t have a checking account will still have to pay a portion of the check to the bank for check cashing fees, I bet this was lobbied for heavily by the banks (who aren’t financing these companies or own them I’m looking at you Wells Fargo)

  7. xerent says:

    @SkokieGuy:

    Where do you find $5 ATM’s? I get 4 withdrawals free a month, and generally, ATM’s around this area cost $1 – $2.

  8. @Bladefist: Yep

    1. The APR extrapolation assumes that some person (we’ll call him “Idiot”) rolls this 2-week loan over for an entire year and the lender keeps charging the same fee (which is probably an origination fee).

    2. The lawmakers are probably all comparing the extrapolated rate against a home or car note, which would indeed be pretty extravagant. That’ll pull some heart strings.

    I’m not trying to be an advocate for these lenders, just trying to see it from their side.

  9. SkokieGuy says:

    @zero_o: Of course it was. The banks and financial institutions are a huge and well funded lobbying group. Payday lenders are more likely independent operations without lobbying muscle or big PR dollars.

    Their customers are also not well organized or politically savy enough to speak or counter the media spin.

  10. MayorBee says:

    @Bladefist:

    It’s a short term loan. $15 for $100 is 15%.

    Right, it is a short term loan. And it is 15% over the term of the loan. So a two week loan at 15% works out to a little more than 391% annually. In the financial world, unless stated otherwise, a percentage on interest indicates annualized rates. It’s done that way in order to provide comparability between two rates.

  11. SkokieGuy says:

    @xerent: ATM’s are typically charging $2 – $2.50 a transaction + the fees by your own bank.

    Yes, if you use the right ATM and have the right type of account, these fees may be waived, but the consumer of a payday loan is less likely to be financially savy and / or have the luxury of choices.

  12. B says:

    @zero_o: Credit card interest rates are limited to the Usury laws of the state they are incorporated in, which is why most of them are incorporated in Delaware. Even with those lenient laws, the highest interest rates is around 28-30%, pretty much the same as this law requires for payday loans. All this law does is make payday lenders work under the same restrictions as banks/credit card companies.

  13. eighth_note says:

    @Manok: The interest rate cap isn’t the problem. The limit of 4 loans per year is the problem.

  14. mknoll1 says:

    Remember that this $15 fee may save the consumer $100 in other fees. If that $100 allows someone to send in a minimum payment on time to 3-4 different bills there could be a huge savings. Noone forces people into these loans. People take these loans because it is cheaper than the alternative. Obviously of you roll over a loan 40 times in a year that is going to hurt but in a capitalist system we have to allow people to make their own choices.

    Also remember that this $15 is not technically interest but rather a fee. I can easily assume that the loan origination incurs $5-$10 in direct admin costs that are completely separate from the risk premium paid by the consumer.

  15. tmed says:

    Nobody wins but the banks. This was a law targeted to close an industry, not control it.

    On top of the interest cap, there was a limit to the number of loans you could get in a year, how’d you like that on a credit card?

    If the evil politicians had worked with the evil lenders to come up with a compromise that would have kept them in business, the evil banks who fund the politicians would have been upset.

    The industry had a demand, the law does not fix the cycle of indebtedness, it will simply cost these people more in bad check fees rather than usurious interest.

    Someone was getting in on their racket.

  16. OribelDarnsies says:

    Being an Ohioan, I’ve used some of these loans in the past, albeit responsibly. I’m not quite sure I agree with this legislation, although I’ve already seen some lenders start to work around this. Instead of charging $75 interest on a $500 loan, they will only charge $10 “interest” and a $65 “loan origination fee”. So they stay under the 28% in pure interest, but they would have you believe it costs about $30-65 for them to do the paperwork to start the loan off in the first place. I eventually joined a credit union which competes with the payday lenders by only charging $8 to loan a customer $500. If all of the payday lenders dry up and leave, I wonder if my credit union will still offer that service since it will have no one to compete with?

  17. Bladefist says:

    @MayorBee: @Ash78:

    Right, exactly my point. You can’t roll everything into an APR, if its rarely ever going to be over a month. This is dishonest to say its 391%.

    Should we manipulate all the interest rates to make them sound this bad? Instead of calculating my home loan rate yearly, I’m going to calculate it over 30 years. Well holy crap, I’m paying an outrageous rate. Government! Government! Take my bank to jail! They’re taking advantage of little ol me, on noez, i cant make decisions on my own. helpppppppppppppppp

  18. opsomath says:

    This law places restrictions on the consumer. How is that a victory for consumers?

    No one’s arguing that payday loans are a good financial decision. But this is a stupid solution. If people want to help folks that get screwed by this industry, they should contribute to a nonprofit that will aid people in need interest-free…I know many churches do this, and community care type centers.

  19. laserjobs says:

    Banks get away with $35 fees for being $1 overdrawn. Is it not better to borrow $100 for $15 for 2 weeks before your next paycheck?

    Banks have lobbied this bill for sure and watch for banks to offer a replacement product in a matter of months that ends up costing more than the payday lenders. Be careful what you wish for.

  20. muffinpan says:

    Ok great Ohio you just busted the payday stores. All you did was move the payday loan operations underground where it will be controlled illegally by criminals. Poeple will still need the loans they will just get them from loan sharks instead of legitmate business that pay taxes and employ people. Good job Ohio.

  21. MayorBee says:

    @Bladefist: As I said, interest rates are commonly annualized so they can be compared apples-to-apples.

    Credit card statements show your APR, the daily amount of interest charged, and the effective rate of interest applied to what you owe at the time. By your logic, credit card statements shouldn’t have to print the APR because some people pay off their cards every month.

    As for your mortgage, how did you decide on which rate was best for you? Did you have to whip out your calculator and figure out how much the APR was for each lender because some presented it in a daily rate (wow, that’s a great rate, just pennies on the dollar!), while some gave you fortnightly rates, and yet others gave you real life examples (i.e. dollars you’ll pay in interest over the life of the mortgage at $x principal)? Somehow I don’t think so. The interest rates were, by financial standards, presented in an APR format so you could compare them to each other.

  22. Shadowman615 says:

    @Bladefist: “Rarely over a month” is a stretch there as well. These loans quite often stretch on for months and years since the customers who get them need the money after payday just as much as they needed it before.

    And nobody is being dishonest and picking and choosing loan term limits. The A in APR means annual; it’s an accepted standard. Saying that it’s similar to calculating your home-loan interest over 30 years is what’s dishonest. My credit card lists an APR even though I pay that every month as well.

  23. Snarkysnake says:

    @laserjobs:

    Banks are wrong and exploitative to charge those kind of fees too. It’s time to crack down on all of this to “assure an even playing field” as the lobbyists like to put it.Loophole proof caps on this kind of robbery would be a good thing. As for the ” it will only hurt the people its designed to help ” bullshit,it’s hard to see how consumers would be any worse off if banks and other financial service providers were tightly regulated like they used to be .

  24. letoofdune says:

    I’m going to jump on the bandwagon and say that this is stupid. It flies smack in the face of being a good consumer – this is the people saying, “We’re too stupid and naive to help ourselves, government, please help us!”

    This is, by it’s very nature, a risky business. These aren’t people who have savings – these are people living paycheck to paycheck. They’re going to go from having at least SOME place to borrow money from to no place. And yes, while this may cause some of them to wise up and start saving more, I feel like the vast majority will just borrow money from even seedier sources.

    You can’t legislative common sense.

  25. chrisjames says:

    @eighth_note: Actually, it’s a combination of the two, but the low interest rate is the killer. The dubious intention was to force payday lenders to offer flexible products to stay in business, but without becoming a full-fledged bank, they simply can’t offer better rates than what they were. The 4-per-year limit is just chopping up the dead bodies so they’ll fit in the trunk.

    This whole campaign is dripping with the slime of lawmakers that aren’t getting the picture. The consumer opinion was tailored around scare stories of people that took 2-week payday loans, then spent months and months paying them off. This may be a volatile form of credit, and an exploitative industry, but it’s underscoring the idiocy of the people getting into these messes. Yes, it is the consumer’s fault, because they tried to abuse the loans and got in deep trouble. If the payday lending centers were misrepresenting themselves, punish them, but nixing an entire industry is a dangerous move; it only bolsters others and lets big business dig its claws deeper.

  26. hi says:

    Does anyone else see the charges for overdrafts as a strange loop-hole loan that banks can charge outrageous rates on? If you go over $1 they will charge you $35 for that $1. To me it seems like the bank is loaning you the $1 plus the $35 ‘charge’ without asking you first and doing it to the people who don’t have the money to pay it in the first place.

  27. Bladefist says:

    @Shadowman615: @MayorBee:

    Look, I agree / Understand. But the only data in the article is the 391%. Is there anyway, the government in Ohio is taking advantage of that number? Anyway its being used to sensationalize? Fine, APR is standard. Could they also include the typical rate for the average pay-day-loan user? Well its 391% annually, but, for the average 14 day borrower, its 15 friggin percent. See not that hard?

  28. RINO-Marty says:

    @Bladefist: Fail. APRs are calculated on an annualized basis. That’s where the “A” comes from and is what people generally mean when they talk about interest rates.

    Also, the vast majority of payday revenue comes from a small pool of habitual borrowers. Many of these people make stupid decisions, many are very unsophisticated, many are trapped in debt cycles…and surely many are irresponsible. But there are and should be laws that protect unsophisticated, uneducated people from those who desire to rip them off. That’s why I’m not a Republican (anymore) and, presumably, why you are.

  29. RINO-Marty says:

    @Bladefist: Nope. 15% over 2 weeks is 391 percent. Period.

    Facts are facts. If you feel a fact is sensationalistic, perhaps what you mean is that it is sensational, which I agree with. Not that hard.

  30. bnb614 says:

    Who cares about the payday lenders going out of business. It is only 6,000 jobs. Ohio doesn’t need jobs. GM announced this AM they are closing a plant in Ohio causing the loss of 2,300 jobs. DHL is looking to move some jobs outside Ohio.

    What’s another 6,000 jobs?

    Between those jobs, the jobs lost by the non-smoking bill, the jobs lost by the anti-strip club bill, and steel and manufacturing jobs fleeing out of Cleveland and Youngstown at alarming rates, coupled with the highest foreclosures in the Country.

    Ohio is hostile towards business and the loss of jobs is helping drive this state into the toilet.

    Payday lending legislation doesn’t do anything to deal with the underlying issue of people who need money and now don’t have options.

    Banks and credit card companies have to be dancing in the streets thanks to late fees, bounced check fees, over the credit limit fees, etc that will make a $15 fee on a $100 payday loan look like nothing.

    Sad.

  31. RINO-Marty says:

    @hi: Actually I think that’s a pretty good point. If revenue is structured as a late fee then the gloves are off, as far as I know. But payday borrowers pay those rates for being on time. I don’t even know what happens if they’re late, but it can’t be pretty.

  32. RINO-Marty says:

    @chrisjames: So, we need payday lenders to defend us against big business. Now I have truly heard it all.

  33. Is Ohio’s actions bad for consumers? I think not.

  34. RINO-Marty says:

    @Bladefist: Dude, you have no idea what you’re talking about. Interest rates are generally annualized. Nobody takes 30 years of interest and calculates it on an annual basis because it’s insane. Clearly, the fact that payday lenders charge 391% interest is driving you nuts, but blame the underlying fact, not the people accurately pointing it out.

  35. chrisjames says:

    @RINO-Marty: 15% over two weeks is 391% APR. 15% on a two-week loan that is paid off on time is 15% interest paid. If you take out $100 and pay it back in two weeks, as you are supposed to, then you pay an extra $15, not $391. The point is not that 391% APR is not 391% APR–it is. The point is that 391% is just a scare tactic to “prove” that you are being cheated.

    There’s the APR, used to calculate the loan rate, and the interest earned, the aggregate rate of return assuming all payments are made on time. I have a 12% APR loan, but I’m paying 33% interest on it.

  36. chrisjames says:

    @RINO-Marty: Think about that for a bit. Snappy quips don’t invalidate what I said.

  37. bbagdan says:

    @Bladefist:

    I guess you’re the kind of guy who doesn’t understand calories per serving either.

  38. RINO-Marty says:

    @chrisjames: So what you’re saying is that there’s no difference in terms between a 1-day $100 loan that charges $15 interest and a 1-year $100 loan that charges $15 interest, because they’re both $15.

    I’m surprised to see you and Bladefist defending Payday lenders here, because you frankly sound like the kinds of unsophisticated, easily manipulated, innumerate people who are ripped off by these places.

  39. RINO-Marty says:

    @bbagdan: Heh. A bucket of celery and a spoonful of peanut butter have the same number of calories, right?

  40. MayorBee says:

    @Bladefist: I agree with you that the fact that the rate is 391% is used to shock people, but it’s not a dishonest number. I think that any time financial numbers are used to enact legislation, a very brief mini-course in finance should be given first.

    Perhaps something along the lines of “Interest percentages are presented at an annualized rate. For example, a loan of $100 at a 50% APR would generate an interest payment of $50 at the end of the year. Smaller term loans are also presented at an annualized rate, even though the term might not reach a year. For example, a loan of $100 that is due $15 after two weeks is presented as 391% APR.”

    Then they could go on to explain how they calculate that rate. After that they could present the relevant facts to the issue, like the percent of people who carry the loans for multiple periods, etc. More information is always better, when it’s used to present the case clearly.

  41. Bladefist says:

    @RINO-Marty: Fail.

    “Also, the vast majority of payday revenue comes from a small pool of habitual borrowers. Many of these people make stupid decisions, many are very unsophisticated, many are trapped in debt cycles…and surely many are irresponsible. But there are and should be laws that protect unsophisticated, uneducated people from those who desire to rip them off. That’s why I’m not a Republican (anymore) and, presumably, why you are.”

    Exactly. EXACTLY. You think people are too stupid to handle their own finances, so the government should come in and do it for them. Look, maybe some people are, but thats their problem. It’s their money. Why should the government pity its citizens? Let the smart ones become rich, and the dumb ones, well, remain dumb. We have free libraries. They’re fully allowed to go pick up a book, and read about financial information.

    I know what APR is. If one more person explains what APR is, I’m going to go nuts. APR is a good standardization to explain rates. Especially good when the rates are atleast a year. I am just saying, INCLUDE more data, saying that 391$ on 100$ is not typical.

  42. Bladefist says:

    @bbagdan: oh you’re hilarious. Do you see a lack of understand on my part? There is not a lack of understanding. Just upset the article only uses the one number and doesn’t explain in more detail.

  43. chrisjames says:

    @RINO-Marty: What terms? In the end, I’m paying $15 extra per $100, so that sounds reasonable. I’ll have to come up with that extra $15 in one day, or I’ll have a year to come up with it. So what? That’s inherent in the loan. I pay for the service, and I must accept that responsibility. If you don’t think charging $15 per $100 over two weeks, or one day, is reasonable, go somewhere else. So instead, Ohio decided to replace consumer choice and reason with a lawmaker’s judgement call.

  44. RINO-Marty says:

    @Bladefist: Now you’re confused about the difference between % and $. The article didn’t say $391, it said 391%, which is what it is.

    And thank you for so succinctly explaining the Republican Party platform, which is: “I’m out for myself, and f*** everybody else, especially stupid people.” Perfect!

  45. Trai_Dep says:

    If we can’t, as a society, protect stoopid people from themselves, I want to see Bags o’ Broken Glass on the toy shelves, expired meat on the butcher’s rack and an abolition of driving tests on the cars driving on the streets.
    I’m chagrinned that there’s controversy over using yearly figures for the Annual Periodic Rate. What’s next: complaining that MPG standards are unfair because they use gallons? Jeezus, people, pick a better fight.
    If large banks are using crooked schemes to rip off consumers, the fix is to pass laws stopping them from doing so, not allowing local sleazebags to do even worse. This isn’t Corporatist.

    I’m confident that, once the dust has settled, these legalized loan sharks will do fine under reasonable rates. They’re whining because that’s what they do. Too many of their customers get trapped into 300% rolling loans, teased into them by “only” being charged $15. It’s bad for them and their local economies.

  46. RINO-Marty says:

    @Bladefist: The article says: A typical payday loan charges around $15 per $100 borrowed on a 2 week loan, which works out to an interest rate of 391%.

    What part didn’t you understand, Blade?

  47. RINO-Marty says:

    @Trai_Dep: Exactly. What Bladefist wants is to turn the USA into Haiti. Because that’s exactly how it is down there. Blade, ever been to Haiti, pal?

  48. Bladefist says:

    @chrisjames: I’m making the assumption most people have exhausted all other options before going to payday loans. This is going to hurt people bad. Most of the time, the payday loans are small amounts of money. I would guess usually under $1000. $15 for 100$ loan is nothing.

    No one is arguing what APR is, and I conceded to say its okay to have it in the article, however, its irresponsible to not also include statistical data, saying that 391$ will probably NEVER happen. After a year? On a $100? The pay day loan company would not spend a year going after 100. That is bad business. They’d sell it to a collection agency and that’d be that. The article pin points the absolute negatives, and blatantly ignores any data that could make it sound not that bad.

    And for the big business comment, thats absurd. Don’t know of any wal-mart sized payday loan companies.

  49. Bladefist says:

    391$ assuming 100$

  50. RINO-Marty says:

    @Bladefist: See, but nobody said $391. The article said 391%. Which is what it is.

    Facts upset you, I get that, but seriously, dude.

  51. Bladefist says:

    @RINO-Marty: Hati? America has been a great, rich society, long before many of these regulations. And yes, as a republican, I am for myself. I am for working hard, and living my life to the best I can. It’s my right, to prosper. Not provide for you. That’s called capitalism. If you don’t like it, Move. America is built in capitalism and innovation. As far as trai_dep, no surprise there. Are you guys poor? Is that why you hate everything?

  52. RINO-Marty says:

    @Bladefist: I would bet you a large sum of money you’re a lot poorer than I am. And no, this is not a capitalist economy purely, it is a mixed economy. About 40% of GDP goes to the government.

  53. @xerent: What bank charges for using the ATM to get your own money? I’ve never in my life had to pay to use an ATM, besides one that isn’t my bank’s.

  54. Bladefist says:

    @RINO-Marty: Historically, we are capitalist. The socialist movement has made a lot of headway in the last 20 years.

    Oh you make more then me you think? Well thats not very fair. Can you send me some? I don’t see why in America, you should get better things then me? Obviously we aren’t regulating your income enough. Cuz thats bullshit. I work hard, I should have what you have.

  55. MayorBee says:

    @Bladefist: Payday lenders don’t go after the $100 for a year to get that 391% interest. Lendees “re-up” the loan every two weeks because they’re in a debt cycle they can’t get out of. $15 every two weeks might not seem like a lot, but when it’s being used to borrow $100 (the same $100 each time), it is significant.

  56. RINO-Marty says:

    @Bladefist: Also, you missed my point (just as you can’t tell the difference between dollars and percent). In Haiti there are no regulations. Nor are there any in Somalia. If you’re against regulations (which are put in place by the government to keep people from voluntarily hurting themselves or each other), then those are examples of places without the regulations you despise, and they are hellhole.

    The nice countries – like the USA, Norway, France, Iceland, Spain – have tons of taxes and regulations. And they’re rich.

    Hmm. Weird.

  57. RINO-Marty says:

    @Bladefist: What socialist movement? And whatever you come up with, I hope you include George Bush, who has increased the size of government faster than any other president since LBJ (note to Bladefist: not PB&J, LBJ).

  58. darkryd says:

    “A typical payday loan charges around $15 per $100 borrowed on a 2 week loan, which works out to an interest rate of 391%.”

    Wait, $15 on $100 loan is 15%, not 391%.

  59. Bladefist says:

    @RINO-Marty: I agree about Bush. And you can down play my intelligence all day long if it makes you feel better, it doesn’t hurt me. I’m a republican on the internet. I am among the most insulted people in the world. You’re comments are piddly. I think its funny how you’re betting you have a bigger income then me. Well, my dad can beat up your dad. And I’m not missing your point, I’m disagreeing with your points.

  60. chrisjames says:

    @Bladefist: Limiting choices usually works in favor of big business, the ones who have the power to overcome the restrictions and provide alternatives. That’s not saying big business is bad, they’re usually the guys you want to borrow from anyway, but such restrictions can keep startups out and favor a monopolistic or oligopolistic industry. From there, you can analyze the pros and cons for consumers. Payday lending is part of the larger lending industry, it’s not simply an industry in and of itself. Consider many of the comments pointing out alternatives for emergency loans.

    I don’t think lending is in any way on this track yet, but pulling alternative services from the market is a good way to line everyone up on the starting line.

  61. hi says:

    @RINO-Marty: Yeh I’d hate to see what they charge in late fees. ouch.

    @Bladefist: “If you don’t like it, Move. America is built in capitalism and innovation.”

    The whole “if you don’t like it, move” doesn’t really project a real American point-of-view. If we said that we would never have had a revolution. Everyone would have moved and not thrown tea overboard. Americans are not wimps who cower and with their tail between their legs and run away from problems. We stand and fight for what we think is right. I’m not going anywhere.

  62. MayorBee says:

    @Bladefist:

    Historically, we are capitalist. The socialist movement has made a lot of headway in the last 20 years.

    The Social Security Act was passed in 1935. More recently, the Magnuson-Moss Warranty act was passed in 1975. The US has a history of limiting capitalism in favor of its citizens. This isn’t to say that sometimes this isn’t hijacked, but there is a pervasive history of pro-consumer actions (possibly even socialist) taken by the government.

  63. Bladefist says:

    @chrisjames: Ya. I don’t borrow from pay day loans. I certain don’t advocate borrowing from them. I would loan my friends/family the money before they went there. However, in principal, I don’t like the government getting involved. This appears to be a bi-partisian issue, so there is no reason to bring politics in it, but I just think rip-off companies should be able to exist. And consumers, such as us, through education, put them out of business. That’s the humane way to kill a company.

  64. Bladefist says:

    @hi: I was hoping that my comment would spark an idea in his head to move. Hopefully to a place without internet. I’m not saying that is a policy America should incorporate.

  65. Pro-Pain says:

    I once had an ATM charge me a $5.00 fee (that’s what I get for not reading it FIRST). It also cost me $2 more dollars when I spilled my Red Bull into it rendering it useless. Sweet…

  66. DubbleB17 says:

    @Bladefist: not to gang up on you Bladfist but you are looking at this the wrong way.

    Payday loans up to this point did not have to show or even explain to people what the APR on their “load” was so to anyone who walked in thought that they were getting a reasonably good deal when no one else could help Them. This bill is a good thing because even for the people who are not as intelligent or do not understand finance as well as others will be able to see how bad they are being treated by entering into this contract.

    You said that the government shouldn’t step in and help, but why not? It’s either step in now or these dumb people will be asking the government for money when they go broke…which do you prefer? To me this all makes sense, and i am all for it.

  67. Bladefist says:

    @Pro-Pain: hahaha. Btw, where can you get red bull for $2? :)

  68. Bladefist says:

    @DubbleB17: Adding APR’s and such is fine. Closing them down is not.

  69. katylostherart says:

    so i’m wondering all the payday loan places on the borders will just move their business 10 feet into the next states and just take the loss of the rest of the state.

    also credit card minimum repayment is based on an average repayment time of something like 100 years. credit in general is just calculated to make the loaner as much money as possible and to make the loanee dependent upon more loans.

  70. dragonvpm says:

    To those debating the APR thing, I’ll ask a question.

    Why do you think that the 391% APR number had to be publicized? Why is it such a shock to so many people? Maybe because the lenders didn’t disclose it?

    When I go buy a car, house, apply for a credit card, get a personal loan etc… regardless of how “shady” the big evil corporation might be, they all give me an APR. In fact when I buy a house they tell me what my APR is AND they tell me what the effective APR is for the first year once you calculate the closing costs etc..

    By contrast the payday loan people try to harp on how you’ll _only_ pay $15 for your $100 in 2 weeks. They go out of their way to engage in hand waving and misdirection and they prey on people who may not be as financially savy as they should be so that their vict… err customers don’t see the 391% APR.

    You can whine as much as you want about how it’s not fair to call $15 for a 2 week loan of $100 a 391% APR, but tell me this. What other lending industry doesn’t use or disclose their APR? Don’t you think an industry that hides their APR seems a bit sketchy?

  71. DubbleB17 says:

    @Bladefist:

    It is inevitable for these agencies, once people see the actual APRs they will shut down anyways

  72. mavrc says:

    I’m not quite sure how to feel about this.

    On one hand, regulation sucks. A lot.

    On the other hand, I used to have a shop right next to a payday loan place. I spent an inordinately large amount of time talking to the people who ran the place, since I used to fix their computers, and they were surprisingly uncaring towards the people who borrowed money from them. People would come in and borrow over and over again, and when they couldn’t pay, they were even less forgiving. I’d like to think this industry exists to fill a necessary niche, but based on my experience there were far more “regulars” than there were one-time or two-time borrowers.

    The point of all this being – if a significant segment of the populace is making horrible decisions, do we regulate? If so, when?

  73. @dragonvpm: The lenders DO disclose it, though; it’s written in big bold letters on the form you sign when you’re taking out the loan. Now, granted, you’re not in a position to argue when you’re filling the form out (you need the money, right?); but the fact that the interest rate is completely insane is listed as part of the transaction.

  74. dragonvpm says:

    @Magnakai Haaskivi: I’d be curious to see one of these forms. Based on what I’ve seen of payday loan locations, I haven’t seen anything that pointed out interest rates the same way you see at banks or car dealers etc…

    I’d also be curious to see how the actual loan process is typically handled. Even when getting a “normal” loan I often feel like the lender is frustrated that I actually insist on reading every paper they give me to sign. Somehow I don’t see payday lenders being more forthcoming about what people are getting in to.

  75. cashmerewhore says:

    @Bladefist:

    The problem is (and I’m sure somebody has mentioned it) is that most people don’t pay off the loan in one cycle. It’s more like five (loan, payback, write again the next day….repeat).

    If they take you to court over it, they only get 6% interest. Atleast in the case of my mother.

    And I’m in Ohio. The system works for those who use it as it’s intended purpose, a quick fix. Those who can pay it back at the end of the loan and not have to re-borrow are fine. It’s those who can’t who are getting sucked in and borrowing weekly/biweekly.

  76. @muffinpan: “Ok great Ohio you just busted the payday stores. All you did was move the payday loan operations underground where it will be controlled illegally by criminals.”

    So by your reasoning, one should be able to buy crack cocaine at the corner drug store over the counter. Is that it?

    I wish all you libertarian nutjobs who love to get on here defending the right to screw people over would find an island to inhabit and leave the rest of us with our “dysfunctional” government. We’ll see who comes out ahead in, say, ten years.

  77. cashmerewhore says:

    @dragonvpm:

    It’s on the papers. But as others have said, $15 over 14 days sounds nicer than 391% APR. And who keeps rolling over that loan for a year (granted, I’m sure this does happen….)

  78. coan_net says:

    Even though I would never use a payday place, it does have it’s place – and don’t like to see such restricts placed that will cause most to close down.

    As long as all the fees and cost of everything is spelled out (NO HIDDEN FEES) – then a place should be able to charge whatever it wants. (if the market did not like how much they charged, well then it would not have multiplied from 100 stores to well over 1,500 stores in the past few years)

    Guess we are going back to the days of loan sharks who will break peoples legs when the don’t pay – YEA, thanks government!

  79. Trai_Dep says:

    Love how Bladefist’s solution to problems in the (low-end, in this case, but still) financial sector is less regulation. All about him, from ocean to ocean, our economy is teetering on the brink because… Wait for it… Not enough regulation of the shadow financial markets.
    His solution: even less regulation of the financial markets.

    On the bright side, Bladefist isn’t a fireman:
    Me: My house is on fire!
    BF: I’m on it! Lemme pour this gasoline on it!
    (FOOOOOOOM!)
    Me: You idiot! Now my neighborhood’s on fire.
    BF: Whoa. That’s b-a-a-d. Wait! Here’s some kerosene!
    Me: Arrrrrrgh!

  80. @letoofdune: “You can’t legislate common sense.”

    Uh, yes. You can. It’s done all the time. You either exercise common sense, or the government sanctions you. Drive like an idiot, and John Law takes your license and impounds your car. HOA’s legislate common sense in their own neighborhoods all the time in the name of maintaining property values. The SEC has (or at least, had) regulations in place to keep people without common sense from screwing up the economy by doing idiotic things at the stock market. Need I come up with yet more examples? I can go all day.

  81. SinisterMatt says:

    I’ll skip the question as to whether the interest rate is accurate or not. I’ll just add that these places really do oppress the poor, and I hope that Ohio’s example spreads to other places too. One of them at least was started by a guy who was indicted and convicted of fraud of some kind some years ago. These aren’t good businesses.

    There should be some regulation of the government to protect from abuses that can arise from capitalism. For example, did you know that J.P. Morgan, the wealthy financier, bailed the United States government out several times for billions of dollars? This was in the 1890s. Someone should not have that capability because then they could control the government based on money. Or we would be paying much higher gas prices because Standard Oil controlled all the nation’s oil supply. Both were busted by anti-trust laws, which is a form of government regulation.

    However, there are limits to regulation. I don’t think, for example, that we should be bailing out people for their poor choices. A hand out only breeds dependence and laziness.

    Cheers!

  82. TheNerd says:

    I don’t think they will even get half the signatures they need.

  83. rmz says:

    @mavrc: I’m with you on this one. I’d like to see the government take a hands-off approach to this as the current terms are already listed in black-and-white on the contract one signs when taking one of these loans. However, it can still be considered predatory lending and I feel that the government has at least a small duty to protect its citizens from fraud and deception. However, whether this actually can reasonably be considered “fraud” or not is certainly open to debate.

    I don’t like the idea of businesses being shut down when they’re clearly bringing in steady business (so clearly they’re offering SOMETHING of value), but the usefulness of a payday loan can be completely destroyed if a person gets sucked into the cyclical nature of the system.

    For the record, I also agree with Bladefist on the APR scare tactics thing. Even though it’s technically accurate to refer to a $15 fee on a $100 two-week-term loan as a 391% APR, it’s about as misleading as referring to (as the analogy has already been used) a $2.50 fee on a $20 ATM withdrawal in the context of some sort of “APR.” For such short loan terms, I think it’s more appropriate to consider these costs “service fees” or the like instead of “interest” since the APR model wasn’t really designed for such short-term loans.

  84. unpolloloco says:

    So….where are people going to get money in emergency situations now?

  85. @dragonvpm: I might also add that there are used car dealers who make a nice piece of coin selling the same car over and over again to people who wouldn’t qualify for an ordinary car loan. Lots of them operate within walking distance of military bases. Is that right, or does the so-called ‘right’ to drive outweigh society’s interest in protecting consumers, even stupid ones.

  86. SinisterMatt says:

    @unpolloloco:

    They could save it. Have an emergency fund.

    Cheers!

  87. dragonvpm says:

    @cashmerewhore: Like I said above, I’d like to see those papers.

    I’ve had personal experiences where a CC company “notified” my parents that their interest rate was being bumped up substantially by hiding the actual notice on the back of a letter in 4pt type that _I_ needed a magnifying glass to read (and my eyesight isn’t bad).

    What was more annoying, the letter was advising them of a bunch of “great new features” in nice big 12 pt type, and it was pretty much dumb luck that I happened to look on the back and notice the tiny type on the very bottom of the page. Ever since then I’m wary of how companies may comply with requirements.

    Given how the payday loan industry seems to work, I’d be curious to see what their papers look like and how they actually complete a loan. Do they use standard loan forms that have the interest clearly spelled out, or do they use their own “in house” forms that meet the letter of the law, but not the spirit (or do they conveniently leave something on top and hurry the customer the signing. Etc…

    I guess it just seems to me that any industry that charges more than 10 TIMES what our good friends in the CC industry do is unlikely to be more customer friendly and up front about fees etc…

  88. Nathan Smart says:

    How would you feel if people were constantly calling your elderly grandma and convincing her to give her money to all kinds of useless things? It’s clear that she’s the target because I sure as hell don’t get those calls.

    It’s the same principle. Preying on those who don’t have the know-how to do otherwise.

  89. Nathan Smart says:

    @unpolloloco: How did they do it before payday lending?

  90. dragonvpm says:

    @Steaming Pile: Umm… you’re talking about “Uesd Car Dealers” when did they become the standard for honesty and consumer protection? I’m not entirely sure how the scheme your describing works, but it’s pretty common knowledge that a lot of businesses around military bases exist largely to take advantage of soldiers who are often young, inexperienced, and might have a lot more money than they know what to do with. I don’t think it’s right, but as the comments to this thread show, a lot of people think it’s ok for other people to get screwed so long as there is enough protection in place for them to feel safe.

    When I mentioned mortgages, cars, CCs, and loans, I was hoping people would remember how sleazy all of those industries can and have been DESPITE pretty substantial regulations that they operate under. Now look at an industry that charges, 55x, 35x, and 10x MORE than many of those industries. Yet, folks want to argue that they these regulations are too harsh? That they’re not needed and that people should just not be stupid? If the whole subprime mortgage fiasco hasn’t taught us that we need to regulate how people can satisfy their greed, then we’ve got some major problems.

  91. jbtampa says:

    More will be revealed on this one…….banks are in this already….as told on Frontline: Wells Fargo owns PawnAmerica, other big banks fund Amscot, so plans are in place, count on that…

  92. @dragonvpm: “@Steaming Pile: Umm… you’re talking about “Uesd Car Dealers” when did they become the standard for honesty and consumer protection?”

    Now, explain to me the difference between used car dealers who use self-financing to scam the poor and payday lenders who do the same with “monthly fees” versus interest. Both hope the mark will default so they can do what they do. One so they can get their hooks in deeper, and the other so they can retrieve the bait so they can dangle it in front of the next sucker.

  93. sir_pantsalot says:

    @mavrc: “The point of all this being – if a significant segment of the populace is making horrible decisions, do we regulate? If so, when?”

    If the answer to that question is yes then the voters in Massachusetts shouldn’t be allowed to vote anymore. Any state that elects Kerry and Kennedy(repeatedly) has proven that they can’t make sound decisions when it comes to voting.

  94. dragonvpm says:

    @Steaming Pile: Did you actually read my comment?

    I don’t think used car dealers are any less sleazy than CC companies, subprime mortgage lenders, some banks etc… The only difference is that there seem to be more regulations in place to protect consumers from modern shysters whether they work in a car lot or at a bank. Therefore I don’t see why the payday loan industry shouldn’t also be regulated and as such I didn’t think the regulations covered in this post were so horrible.

  95. SuffolkHouse says:

    This ought to mention that they mean APR.

  96. artki says:

    It’s a bad idea for Ohio to do this (for the reasons others have given. People have a right to make mistakes) but at least it’s an interesting experiment. We get to see just how profitable the payday loan business is. If the number of payday storefronts stays about the same then it must be REAL profitable becaues they can stay in business even with these restrictions. If they go away then we know they needed rates that high to make money.

  97. HeartBurnKid says:

    @rmz: Why is it misleading? Interest is always stated in terms of Annual percentage rate. That’s the lingua franca of the financial world.

    Heck, I once had to get a payday loan several years ago, and the place I went to even had the APRs on a big sign on a back wall. As I understand it, in California they have to. And they were all very ridiculous.

  98. cashmerewhore says:

    @dragonvpm:

    I have one that the APR was listed at 1825% because it was for all of three days. Fell into a rut, it was a quick fix that didn’t involve anybody’s lectures, and was paid back and done with on payday.

    If I can find the receipt I’ll post it for consumerist. The APR only works out to 391% if you do the full 14 day loan. You get screwed more for shorter terms.

  99. dragonvpm says:

    @cashmerewhore: That would be great to see. I’m honestly curious about how the payday companies do their business (despite some lean times in the past I’ve been lucky enough to avoid having to go to them). Just looking at numbers like 391% etc… makes them look more than just a little greedy (and I mean greedy in the sense that they would screw people over to make a buck as opposed to just trying to make a living or make a good living). Knowing the demographics they serve adds to that perception, so I’d like an idea of how they operate and if they really are as predatory as they come across as.

  100. luminus says:

    It’s worth mentioning that the founder of Ohio’s largest payday lending company, Checksmart, sold the majority stake in the company two years ago (almost to the day) with the agreement that he would stay on in an executive capacity for, I believe, two years. Rumor at the time was that he made near/over 100 million dollars for the sale. He is the father of Jamie Fraunberg, who worked his way up very quickly and was VP of store operations, and is now also the president of FISCA. You can see him quoted several times in the press currently. The terms of the sale were undisclosed, but I was working there when the change occurred. Big Jim, as he was called, always seemed like a shrewd man.

    Checksmart has several hundred stores in other states (Indiana, Arizona, Florida), and thus will not go out of business as a company – the majority of store employees were paid near minimum wage and were often customers themselves. Knowledge, as they say, is power.

    [www.bizjournals.com]

  101. hi says:

    @Bladefist: lol :)

  102. cashmerewhore says:

    @luminus:

    Checksmart is the one I’m quoting. I’ve used them in a bind. I’ll admit it. I don’t have family I can ask if I find myself short for afew days, and my last job was terrible about paying me on time (or for my entire payperiod).

  103. Joeyjojo says:

    “$15 on $100 is based upon the idea that 1 out of every 7 people who get such a loan will not pay it back. Would you like to be in that business?”

    That’s amazing. I did not know that. So, for every $90 a payday loan office brings in, they loose $100? Interesting. I wonder how all those payday loan places stay in business?

    Ah, the power of made-up-numbers. You can win ANY argument with them!

  104. MrGrimes says:

    @Bladefist: There is no sensationalizing of the interest rates. These loans are not 15% haha. They typically end up costing the borrower double or triple what they originally asked for. Im not taking sides but CNN.com did a good article on this industry recently:

    When the CRL took the average payday loan principal as reported by state regulators and multiplied it by the average number of loan rollovers per year, it found that typical borrowers pay back $793 for a $325 loan.

  105. ucanthandle says:

    There is on the behalf of Ohio legislators, either an appalling lack of understanding of this issue, or, there is a disgusting propensity for self-promotion at the expense of their governed state.

    If the goal in this case is to save their helpless and foolish constituents from themselves, our “heroes” should have addressed overdraft fees that can reach into the tens of thousands of percent, (if we utilize the same absurd APR criteria). Bounced check fees as well can be a FAR worse deal for the consumer. So it seems obvious that consumer protection wasn’t the paramount issue at play.

    And, considering that Ohio will now have yet another 6,000 plus unemployed out of this legislation-that they will need to pay unemployment, cover emergency medical bills from newly uninsured workers, lose out on income tax, subject the state to millions of square footage of vacant office space, endure additional bankruptcies on the part of now un-served consumers, vendors, merchants, etc.-one has to ask-”what’s in it for Ohio?”.

    The only sensible conclusion one can come to is that Ohio’s ever more ripening corpse is a fine launchpad for political grandstanding. This legislation strips credit-challenged consumers of the ability to chose to fight for themselves against the banks-asks them to beg for help, or forces them into far worse financial alternatives-all at an enormous fiscal cost to the state.

    But when you factor in that this legislation is saleable to the uniformed-that it makes bogeymen out of the payday companies, and that it will most likely be a net vote creator, it’s easy to make the decision to sell out your state and sell out the people you claim to champion.

  106. cashmerewhore says:

    @Joeyjojo:

    You do realize they charge outrageous amounts for check cashing, money orders, postage stamps, phone cards, utility payments, moneygram/western unions and to send or receive faxes, right?

    They’re not just about the payday loans.

  107. cashmerewhore says:

    @MrGrimes:

    To break it down, it’s 15% APR (annual), compounded every 14 days at maximum (could be as short as one day). 15 x 26 (52 weeks per year/2) = 390%.

  108. sonneillon says:

    In the end it is still usury. Sometimes you have to protect people from poor financial decisions. Social Security exists for that purpose.

  109. chilled says:

    this is the bank of last resort for these people.$15 on the hundred is cheap for people with no credit,they are the ones who are hurt by do gooders in the gated communities!!

  110. OhioVoter says:

    @zero_o couldn’t be more wrong.

    Take a look at the list of folks urging a YES vote on HB 545:

    [www.ohiocoalitionforresponsiblelending.org]

    It’s a large coalition of 245 organizations that are working to fight poverty. These are Catholic & other religious charities, groups that help the homeless, and groups who run food pantries. Not a single bank on the list.

    I was part of this effort, and I assure you, we were all volunteering our time on this as part of the work we do every day advocating for the poor. There was never a lobbyist or a bank representative at the table at any stage in this effort.

    Meanwhile, the Payday Lending industry has MILLIONS in “lobbying muscle” and “PR dollars.” They spent a heck of a lot of money fighting HB 545.

    Personally I actually have no problem with an industry hiring lobbyists to go represent them in Columbus or in DC when there is legislation that they feel threatens their bottom line. What I do have a problem with is when they deceive people into thinking it’s some kind of grassroots power-to-the-people movement.

    Re: your assertion that “their customers are also not well organized or politically savvy enough to speak or counter the media spin.”

    Well, actually the Payday Lending industry is so huge and profitable that they gave their employees a paid day off to go to Columbus to lobby against HB 545.

    Additionally, at least one Payday Lending company had its clients sign letters to legislators (urging a no vote on HB 545), deceptively presenting it as part of the process of applying for their loan. The last report I heard (unconfirmed) before they were called out on it was that they had generated around 40,000 such letters.

    Also, if you read the anti-HB545 posts on the blogs you’ll see the exact same talking points used over and over again, the only variation being the name used and whether the poster (likely some 19 year old who is being paid to be their online communications guy) claims to be the single mother of 5 or the single mother of 6.

    “Media spin”? Every time my side (pro-545) got in the news, the media also included the Industry’s side. We heard “6,000 jobs” over and over again. They were extremely effective in pushing that figure.

    Clearly, the Industry was well organized and they got their message out. Good for them. I would expect nothing less of a campaign that is so well-funded.

    The pro- HB545 organizations did outreach the old-fashioned way. We simply asked our members who cared about this issue to contact their legislators and urge a yes vote. No deception, no paid day off.

    This bill passed with bipartisan support because it was good legislation. Legislators had the good sense to see that the Payday Lending Industry should be regulated.

    Folks who disagree and are upset about HB545 should take action rather than whine about it and spin tales of the poor downtrodden Payday Lending Industry. And if you really still believe that your side only lost because it wasn’t organized enough, the logical answer is to get organized and contact your legislators. ANYONE can make those phone calls, send emails, talk to their friends, etc. The Payday Lending Industry will be more than happy to give you talking points and phone numbers while they trap you in a 391% interest loan.

  111. OhioVoter says:

    Regarding those who make the point that regular bank fees are outrageously high, I have news for you: Governor Strickland agrees. He was asked about this at the press conference at the signing ceremony of HB 545 and gave a straight answer on it.

    One thing at a time though. It took a *very* long time to craft a payday lending bill that had teeth in it but would be able to pass. It would not have been smart to try to tackle regular banking fees in the same bill. Also, HB545 was basically an effort to close a loophole that the Ohio legislature created in the 1990s that exempted payday lenders from some of the regulations banks are subject to. So additional legislation that further limits regular banks is going to have to be a whole separate piece.

    If folks who are upset about bank fees want to get their legislators to put together an anti-banking-fees bill, go for it! Call your Ohio Senators and Reps, build community support, write Letters to the Editor of Ohio papers, find out what if anything has been done in other states, find advocacy organizations that share your values who can partner with you on this goal, etc. That’s how we passed Payday Lending legislation and there’s no reason the same thing can’t be done with bank fees.

  112. newfenoix says:

    I disagree with the law because it still allows these idiots to stay in business. These guys are not an asset to anyone. They PREY on those people with very little money. And when they get the loan, they usually keep having to renew it because they don’t have the money to pay it off.

  113. sinfonian94 says:

    @Bladefist:

    Uhhh…. you’re an idiot. that $15 per 100 is for two weeks. That means 26 cycles in a calendar year. Also, you don’t seem to unerstand that ALL interest rates are computed as an annual percentage rate. 15% of $100 is indeed $15. However that’s for 1/26th of the standard time frame for computing interest rates. FYI – 26 (number of cycles in a year) times 15 (percentage per cycle) = 390%. No compounding of interest at all. If the person borrowing had a rough time and had to keep taking out the loan every time they paid it off, they would pay $390 in interest alone in a year.
    Here endeth the Junior High School Math lesson for BladeFist.

  114. 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]