If the idea is to put more money in consumers hands, then is this good or bad? Thoughts?

Yes, I know the interest is high. I am curious as to what others think and yes I know I am on the consumerist and no I am not new here.

I voted on this one. It's a no brainer. I remember a PBS special which said ... "there's a lot of money to make off the poor."

Not any more for these sharks in Ohio. Score one for the good guys.

Now let's get on to nationalizing healthcare. At this pace, you will have to be rich in 2050 to receive any health or dental care.

Not sure who got this wrong - Issue 5 in Ohio was a choice placed by the state legislature into the law allowing the citizens to chose between A) capping interest rate and length of loan to short period (28% and 30 days I believe) and B) higher interest rate and longer period (38% and 60 I believe).

This was not a referendum on the law nor was it an attempt to repeal the law.

By-By pay day lenders - and Good Riddance!

Eliminating pay day lending institutions eliminates options for low income people who may need short term liquidity. Financial institutions won't make loans to high risk parties if they cannot be adequately compensated for said risk. This will cause more missed car/house payments, or worse, will turn people to the black market to find money, which can have much higher interest rates and can be dangerous.

State referendums are running amok. Corporations pay tons of money to get signatures for bills in their own interest. Here in California several "alternative energy" propositions were paid for by big corporations. I would like to see a law that states that only volunteers may gather signatures for ballot issues. I bet that anti-usury law would never have made the Ohio ballot.

FWIW, the ballot measure passed , with the wording to uphold the measure.

Stating that Ohio voters failed to repeal the law made me double check if the vote had won...

These places are legal loan sharks. When I was in the army several of my friends got stuck in the cycle of borrow, pay interest, borrow a bit more, make a payment, pay interest, borrow more, etc. It's a tough cycle to get out of.

If a person cannot get a loan he or she should evaluate other options. A secured or co-signed credit card that is paid off or paid in installments will help build credit and allow the person to borrow form a respectable institution. Also, people should feel that they have to borrow money from banks. Credit unions are a lot better than any commercial bank and since they are member owned they are a lot more flexible and open to making loans to people with not-so-good credit.

In somewhat related news, in Arizona the law allowing pay day loan shops to exist expires in 2010. The payday loan industry sponsored Proposition 200 "Pay Day Loan Reform Act" that would have extended their permits beyond 2010 and thankfully Arizona voters rejected it last week. If the will of the people is respected by state legislators, pay day loan shop's days are numbered in the state.

[ballotpedia.org])

@jdhuck: Bad because of the non-negotiable terms and ease of getting it.

For all purposes its a legal loanshark.

@chuckv:

I actually saw a news article that was talking about non-profits in NYC that were trying to replace pay day lenders. The idea being that removing the profit margin would allow them to drop the interest rates to something reasonable.

Problem was, the default rate was so high, they still had to charge nearly 300% APR in order to break even without massive infusions of cash....

@levenhopper:

Agreed. I had to read that a couple times and parse it out in my head to figure out what the OP actually meant.

Here in Ohio, we're serious about having people learn from their mistakes.

If you don't have enough money to pay for something, then you shouldn't purchase it.

If what you're purchasing is going to have a negative effect on your state of life, e.g., not being able to pay the bills, then you shouldn't be purchasing it.

If something bad happens and you need cash quick, well, you should already have cash set aside for such an occasion. If you haven't done so already, start now.

If you REALLY need cash, go to a friend or relative. If you don't have friends or relatives, use a credit card.

No credit card? Sigh...just figure it out for yourself.

Need I go on?

There is nothing wrong with a 391% apr on a one or two week loan. That is a 15% interest over a 2 week period. Which is a 15 dollar fee for every 100 dollars you borrow over a 2 week period. They should be allowed to charge such fees for the initial loan period. Then have to drop down to a conventional interest rate when the person fails to pay. In contrast a 28% apr would only allow them to charge 1 dollar per 2 week period. If they can only charge 1 dollar per 100 dollar on a 2 week loan there is no way to make any money.

I used to be the VP of IT for a large payday lending company (500+ locations)...I worked there for over a year before we were acquired by a competitor. I have been in the stores and seen the good sides and the bad sides of payday lending.

In my estimate, 20%-25% of the people that use the service are in there for the wrong reasons. I have seen women come get loans and walk to the nail salon in the same center; I have seen men take their $$$$ and go to the electronics/rent-to-own next door.

However, the remainder of the people that use the service have no other place to go for short-term liquidity. If they have credit cards, they are maxed out; if not, they don't have the type of personal balance sheet that would allow them to get a short term loan at a bank or credit union. Most of the references they give us wouldn't qualify as co-signors.

Yes, the rates they charge are outrageous (sometimes criminal)...but what's the APR for BoA's $32 fee on a bounced check?

I don't want to start a flame war, but I think the question that no one has been able to answer is by outlawing or regulating the industry how are you solving the immediate problem? When these branches go out of business, where do the people go for short term needs? They may have one or two things they can pawn, but then what?

@jdhuck: For one thing, they prey upon the poorest segment of the population. Middle-class families would be more likely to go to a regular bank. It seems criminal that to charge ridiculously high interests rates to those that are the least able to pay them

Our government isn't financially responsible why should I be? Bring on the 299% APR I need to pawn my 86 Grand Am for lottery ticket cash!!!!

@MentallyRetired: I am *so* glad that Arizona voters were able to see past this "reform" proposition for what it was. The payday loan industry spent roughly 18 million dollars in advertising.

I knew something was up, however, when I saw "Yes on 200" posters on the windows of payday loan offices!!

@firestarsolo: Wow. I thought that this bill was to keep the PDLs from preying on the less fortunate. I suppose you want it because.. What. "Fuck the poor?"

Nice goin' buddy.

@nobodyman: I think they would be more apt to go to a credit union instead of a bank.

@firestarsolo: AMEN!!!

@bpclay: You make some really good points, but to answer your question:

When these branches go out of business, where do the people go for short term needs?

Will there be people that will be hurt by the loss of payday loans? Yes. However, I guarantee that this number will be smaller than the number of people that or people that are currently being victimized by payday loaners.

@citking: I remember when my husband was in the Navy and they overpaid him and took almost a full paycheck, my husband went to one of these scam artists just to get food in the house. We made too much for food stamdps and WIC, but had no money for food by the time everything was said and done after the Navy was done with their "overpayment". After we went to one of these scam artists it just got more worse. We were sitting on a floor and starring at blank walls for almost 6 months, in base housing no less. It was pitiful. It all finally came to a head one day when my husband was out to sea, I went to pick up his paycheck and I was told he didn't get a paycheck that month. I looked at the clerk and said she could explain to my 4 month old why she could sit in one diaper for the next month and couldn't eat. They said they would hold off on it until my husband reached shore and sent me to the Marines outreach (?) office and they gave us some diapers for the next few days and sent us over to WIC. The office also sent us over to JAG, I believe it was, and they helped us to get out of our contract at a reasonable rate. I would never do a payday loan to save my life again and now I warn everyone I know about anykind of scam I know of. (My brother-in-law keeps trying to get me to sign up for email lotteries. I try warning the boy. They want to send him a check to verify his account, then have him send him back some money, then they'll send him the rest. --SCAM-- In one ear out the other though.

@jdhuck: These loans often are used by low level drug dealers to buy the drugs. That way they don't have to loan from the drug wholesalers, which can be dangerous if you don't pay up.

These loans often are used by low level drug dealers to buy the drugs. That way they don't have to loan from the drug wholesalers, which can be dangerous if you don't pay up.

@nerdychaz: *whips out pen and paper* Reeealy? And then what do they do?

@bpclay:

Family and friends. The same as it was 100 years ago.

Yay for Ohioans for this law. Other states should follow suit and get propositions like this on the ballots.

Some people in Ohio (and, sadly, Arizona) are no longer able to get money from Pay Day lenders, which means they are no longer able to buy things, which means the economy continues to suffer.

Why do you hate America?

@nobodyman: [a]Are grocery stores going to give them food when they don't have money to pay? Will banks give people with no credit, no cosigners, and no references money? Will check-cashing centers give people money without a check to cash?
[b] So in other words, screw the poor? Yeah, some people don't use these places responsibly, but others have to occasionally in order to eat. Also, why is it our responsibility to protect people from themselves?

They tried to pass an initiative here in Arizona that was marketed as "payday loan reform" but was really just extending their business licenses through the current expiration date of 2010. They were given an exemption to the 36% state cap on interest rates through that date.

Fortunately, the voters of Arizona saw through this and voted it down. In 2010, the cap on interest rates should go back to 36% and hopefully these places will start to disappear as they have in Ohio. There are far too many of them here.

I live in the shitty state of Ohio and I voted to keep the law. Screw those a-holes.

If people want to pay 291% who am I to stop them?

Nobody forced anyone to go to these places. If people don't like the service provided, they would not be on every corner.

@firestarsolo: In other words, "be richer!"

Good plan!

"If you don't have enough money to pay for something, then you shouldn't purchase it."

True. If you can't afford food, then you shouldn't purchase it. Steal it or starve!

"If what you're purchasing is going to have a negative effect on your state of life, e.g., not being able to pay the bills, then you shouldn't be purchasing it."

Hey, good idea. If you can't afford to pay the bills, then just don't do it - that way, you have money left for paying bills! Oh wait.

"If something bad happens and you need cash quick, well, you should already have cash set aside for such an occasion. If you haven't done so already, start now."

Be richer! If you can't be richer, then stop eating.

"If you REALLY need cash, go to a friend or relative. If you don't have friends or relatives, use a credit card."

Have richer friends/relatives! These are fantastic (and impossible) suggestions for so many people!

"No credit card? Sigh...just figure it out for yourself."

Might I add: good luck!

"Need I go on?"

No, you've made your position unquestionably clear.

I too may be missing the point. Obviously they get enough business to have a large chain and most likely everyone on Consumerist has never used their services. BUT, for those who do not have a checking account, or other means of short term borrowing, this sounds like a valid business.

I would assume that these borrowers do not have stellar credit references, and the interest rate reflects the risk involved in the lending.

BUT unlike a loan shark, these are businesses. Closing these stores will force people into the underground with a lot worse of an interest rate and a LOT worse of late payment 'penalties'.

Basically, closing down these stores is the equivalent of sending people to the back alley with a wire hanger (for those who understand the comparison). It's a mistake.

@jdmba: Uhhhh... I'm pretty sure getting a back-alley abortion that has a good chance of killing you is a wee bit worse than being broke for a week. I'm pretty un-PC but that comment had me cringing.

I do admit I'm leery of the government regulating personal responsibility. However, the lenders affected practice a form of predatory lending. For most borrowers, one or two paychecks is rarely enough to cover the loan. The borrower is forced into a cycle of borrowing more just to keep up payments on the loan. These sorts of lenders base their business model on their debtors' inability to pay off their loans.

Besides, I'm guessing that once the "easy" money shops are no longer available, people WILL find other ways to get by - ones they'd previously overlooked because the shiny "GET MONEY FAST" sign was blocking their view.

@nobodyman: It follows that the most risky borrowers pay a higher rate - that's not the issue.

The issue is that the borrowers don't know the interest rate they're paying, what with all the added fees and tricky compounding schedules they use. The lender doesn't care because they've got someone on the hook for $50, $60, $100 per week for life. Think Comcast with all the service and no cable.

Most lending rules stipulate that the borrower must be able to (eventually) pay off the loan by making minimum payments. The way the loans are structured, it's impossible to pay them off.

@howie_in_az: Obligatory SNL Clip: [www.hulu.com]

@chuckv: There is profit to be made in lending to low-income borrowers. Self-Help Credit Union in North Carolina has (or had, last I looked) the lowest mortgage and small-business loan default rates in the state, and they loan basically exclusively to high-risk, low-income borrowers. There's mandatory education with the loans, which dramatically reduces repayment problems -- even with middle-income, lower-risk borrowers.

There's no reason it can't work on a smaller scale as well.

Just a minute here,all of you folks defending these crooks interest rates as reasonable.

These companies can go to Wall Street and borrow money at pretty advantageous rates. (Typically around 6-8 %) and turn around and loan that out at 28% with the new law that they just voted on. Now,there are a lot of deadbeats that won't pay. That's a given. But making 20% before losses and overhead should make for a tidy profit for these companies- UNLESS they do absolutely no credit screening whatsoever ,in which case they get in trouble pretty quick.

Seems like their old business model (the 391% ripoff) was designed to make money whether the majority of borrowers paid or not. Time for a new model. In Ohio.

Don't shed too many tears for these assholes.

@chuckv: It's a vicious cycle. Banks give mortgages, auto loans, and credit cards to people who can't afford them. Then they turn to Pay Day lenders who start a cycle of renewable loans that these people can never get out of, just so they can make one car our house payment. Then, everyone cries, "Think of the poor!"

What a bunch of hogwash.

Twenty years ago, there were no payday lenders, because banks didn't loan people money they couldn't afford to pay back. When people got over their heads, they went bankrupt and their credit was ruined for ten years and they lived in a (GASP!) apartment and drove a beat up, fifteen year old Chevy for a while.

Stop the insanity. Stop the stupid mortgages and the even stupider payday loans to back them up. Make people live within their means again. Otherwise, our economy will never recover.

when people say they're charging 500% interest, that really is misleading. they do have installment loan products with horrific rates of interest, but most of their business is small ($100-$500) loans over short (people generally seem to be outraged at the exploitation of vulnerable consumers. but guys, default rates are really high in the demographic they serve and it costs something to run a lending operation. these companies aren't making bonanza profits. industry leader "Cash America International" had a 14.3% pretax margin in 2007 -- nothing like 300%.

it's a competitive world. if it were profitable to offer people loans for 200% you can be sure that "the 200% money shack" would be opening across the street from "500% ez cash." like some other posters have said, there are lots of truly poor people in this country, and when they are hard up for liquidity these places (while unsavory and sad) do provide it at a price that they can pay. like a lot of well-intentioned reform, this action will make activists feel good about themselves while hurting the people they meant to help. i don't think we should be celebrating this.

@SunsetKid: California has it's own special stupidity that is not present in most other states. The voting populace can pass laws and amend the constitution directly. That means anyone, since big corporations hire the voting populace. That's why you have a crazy labyrinth of competing laws about revenue and spending that keep the budget gridlocked almost all the time.

Good luck with that! I'll take my representative government any day.

@Donathius: Yeah, I live in Ohio, and I had to re-read that part of the ballot just to make sure I was voting the right way. So it doesn't suprise me that articles about it are confusing as well.

@MentallyRetired: I sure hope so. I'm one that voted against Prop 200. I'm glad the people of AZ saw through the so-called "reform" for the payday loan industry. I look forward to driving through Mesa w/o seeing 3 on a corner...

@howie_in_az: The economy shouldn't be built on the house of cards that is the nation's debt. It might be good in the short term, but it has horrible ramifications in the long term.

@unpolloloco: If people don't have money now, they will be even worse off when they have to repay a payday loan *later*. Do not fool yourself: these payday loan centers are *no friend* to the poor. It's inhuman to think that poor people are forced more 250% interest rates while the middle class has to pay no more than 29%.

If these payday loan places cared so much about poor people, they'd be non-profits that charged reasonable interest rates. Instead, they are little more than vultures.

@firestarsolo

My suggestion for those that need money to eat, car repairs, emergency funds is to locate firestarsolo's house and constantly ask for money. He wants that gap between well off and poor so he can feel superior to others because he might have more. If payday loans go away, my suggestion is for people to form coops and boycott businesses and drive fivestarsolo's prices up and income down.

(Assuming there are 4 to 5 employees per branch)

Well done Nanny State. You've put another 163 people out of work in the teeth of a nasty recession.

@nerdychaz: You're high right now aren't you?

In the 20 years that I have been involved with drugs, and drug dealers of all sorts, I have never in my life heard anyone use the term drug wholesalers. Where are they? I have very important things to discuss with them.

Also, most payday loan places don't loan more than 500 or so bucks at a time, that really doesn't buy a lot of drugs. Certainly not enough to "deal" them. Certainly not enough of a monetary loss for a "drug wholesaler" to risk attention by doing whatever it is you think they do if someone doesn't "pay up".