Wednesday, September 24, 2008

Issue 5 (Payday Loans) is apparently MUCH more extensive than you may have realized

And by "you" I mean "me." I might well have been wrong yesterday when I said that the passage or defeat of Issue 5 was irrelevant to the creation of a statewide database of payday loans, and therefore voting "no" would do nothing to protect Ohioans' privacy.

The explanation that I got from a source who's more conversant with the issue than myself simply blew my mind, and I've had to backtrack and check for myself...

Back in July, when the Payday Lenders couldn't come up with satisfactory petition language for a referendum that would repeal all of HB545, they decided on going for a partial repeal:

...Rogers accepted language that would repeal only Section 3 of the bill — the section that eliminates the current law as it relates to the loan amount and interest rate charged by payday lenders.
Specifically, Section 3 repeals ORC 1315.35-1315.44*, and the language you will see on the ballot is as follows:
Substitute House Bill 545 (H.B. 545), which was passed by the Ohio legislature and signed into law by the Governor, substantially changed the law regulating how certain lenders in Ohio operate. Under the referendum, voters must decide whether Section 3 of H.B. 545 should go into effect. Section 3 of H.B. 545 deletes the old provisions of the law regulating check cashing lenders, sometimes known as “payday lenders,” in favor of the new provisions.

1. If a majority of Ohio voters approve Section 3 of H.B. 545, all short term lenders, including check cashing lenders, would be subject to the following limitations:
  • The maximum loan amount would be $500;
  • Borrowers would have at least 30 days to repay the loan; and
  • The maximum interest rate would be 28% annual percentage rate (APR) on all loans.
2. If a majority of Ohio voters reject Section 3 of H.B. 545, check cashing lenders
would be allowed to continue under previous law as follows:
  • The maximum loan amount would continue to be $800;
  • There would continue to be no minimum repayment period; and
  • Check cashing lenders could continue to charge rates and fees, resulting in atotal charge for a loan that substantially exceeds an equivalent APR of 28%.
A “YES” vote means you approve of Section 3 of H.B. 545, and want to limit the interest rate for short term loans to 28% APR and change short term lending laws.

A “NO” vote means you disapprove of Section 3 of H.B. 545 and want to permit check cashing lenders to continue to be able to offer short term loans as currently permitted.

A majority “YES” vote is required for Section 3 of H.B. 545 to be approved.


That had seemed clear enough to me, but things are not always as they seem. In that same July Dispatch piece quoted above, A.G. Nancy Hardin Rogers makes an additional statement:
If successful, Rogers said the partial referendum could cause legal confusion because payday lenders would be operating under two sets of laws — one that requires a 28 percent interest rate, and one that allows 391 percent.
You see, part of the statute repealed within Section 3 of HB545 defines the conditions under which a "check cashing" lender can get a license. The extensive reforms listed in Section 1 of HB545 regulate the behavior of lenders holding a "small loan" provider license.

Apparently, repealing Section 3 will allow the continued issuance and renewal of "Check Cashing" lender licenses. Under this interpretation, nobody would be regulated under HB545 unless they voluntarily applied for a "small loan" provider license instead of a "check cashing" lender license.

Therefore, Issue 5 is not just about repealing the interest rate reforms on Payday lenders, it is about effectively repealing all of the reforms. As the last line of the ballot language states, "...permit check cashing lenders to continue to be able to offer short term loans as currently permitted." The clear distinction made between "Check Cashing Lenders" and "All Short Term Lenders" in the ballot language lends pretty clear support to that interpretation. So without Section 3, Sections 1,2,4,5 might as well not exist.

Maybe I'm just way too dense. Was anybody else misled into believing that a "no" vote on Issue 5 would only affect the interest rate, maximum amount, and minimum payback period? I personally find the ballot language to be somewhat misleading and I'm kind of upset about it, although most of the blame lies with me for not noticing the "check cashing" dodge, especially in light of statements from the lenders like this:
Kim Norris, spokeswoman for the Reject HB 545 Committee, said the new proposed referendum would allow consumers to choose from old loan options as well as new ones created by the new law. Critics say it would create legal confusion and lawsuits.
To be fair, I've encountered a number of summaries that miss this as badly as I do (for example here, and here, and perhaps most importantly, HERE**), but if I've helped to spread this misunderstanding, I apologize.

* Finding these sections on the net is a bit tricky. The web version of the ORC replaces the text of those sections with the single word "Repealed." The Google Cache of ORC 1315 currently has the original text, but if you click on the link for 1315.35 (or any of the specific subsections), it will take you to the current "repealed" version. If you want to use the cached version, scroll down through 1315 instead of using the links.

** It doesn't get much more to the the point than "Guess which part the lenders want to repeal? The part that caps interest rates at 28 percent."


Dan Deceuster said...

You don't know what you are talking about. Personal Loans Zone is a place where you can learn more about payday loans and see that they aren't as bad as you think.

Anonymous said...

Payday Loans are great because things happen, and most of the time when they do, we don't have the money we need. A Payday or a Cash Advance can get you the money you need, when you needed. The best part is that they are fast, easy and nobody needs to know.

Anonymous said...

what now im confused.I just dont want government to tell me how to spend my money period.........Banks and credit unions are raising credit standards and I dont want my options my choices to be taken away.NO ON ISSUE 5

Casey said...

I work hard for MY money– If I make the decision to spend it all on booze and alcohol— no one can stop me. And those two vices can KILL me!!! If I want to blow it all on a trip to the casino or playing the lottery– no one can stop me. But according to the Ohio General Assembly, if I need a small loan to tide me over until next payday to cover my gas or food expenses– I am not allowed to do that. What irony!!!

I completely agree with this statement "....legislation like this stems from people with high ideals but NO idea about reality, or economics." The Ohio General Assembly is so FAR out of touch with the typical Ohioan's concerns, needs, issues, it's disturbing.

~~VOTE NO on Issue 5-- My $$, My CHOICE!!~~

PeterBoston said...

Has anybody putting the payday lenders out of business in Ohio come up with an alternative source of credit? The average payday borrower, by definition, has a regular job and a checking account. The heart of the working middle class are being treated like children.

Peter Boston
Payday Advance News

Casey said...

PeterBoston---- no one has offered an alternative. Credit unions and bank won't make a profit either, so they aren't touching this with a 10 foot pole.

Some facts folks—
“In truth, the typical payday advance customer represents the lion’s share of America’s middle class. A typical payday loan customer is a hard working, family raising adult who does not have savings or disposable income to use as a safety net when an unexpected expense occurs.

Here are the facts:

1)The majority of payday advance customers earn between $25,000 and $50,000 annually;

2)Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;

3)Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;

4)Forty-two percent own their own homes;

5)The majority are married and 64 percent have children in the household; and,

6) One hundred percent (100%!!!!!!!) have steady incomes and active checking accounts, both of which are required to receive a payday advance.” (Source- PD Facts)

Casey said...

Payday lenders don't charge 391%. A payday loans is for 2 weeks, not 52 weeks, which is how APR is calculated. If you went into a store today, and borrowed $100, in 2 weeks, you'd owe $115. Hmmm, I believe that amounts to only 15%. And since 90% of the customers pay on time and as agreed what exactly is the problem? It's cheaper than bounced check or late fees.

Consenting adults have the right to spend their money as they see fit.
If I want to blow my entire check on cigarettes, alcohol or gambling... no one would be checking up on me or not allowing me to do that. But for some reason, the Ohio General Assembly doesn't want me to be able to get a $100 loan for gas, rent, food, etc to hold me until next payday. HOW IRONIC!!!

The Ohio General Assembly wants us to play keno, gamble in Wilmington, and gladly take our hard earned money..... But oooops, sorry they think none of us are responsible enough to decide other financial decisions for ourselves. So they've decided they're going to limit our choices.

I work very hard for my money and as a taxpayer & citizen of Ohio, I don't want to be told, I can't get a loan for a few hundered $$ if I think it's necessary. That is MY BUSINESS!

BTW--- who has agreed to step up to fill in for payday lenders if this passes thru in Nov? Anyone, Bueller?? NOT ONE SINGLE BANK OR CREDIT UNION!!! B/c 28% for 2 weeks is $1.08 profit!! No one can stay in business or make money on that!

And yet, if this "law" goes through the need for short term loans will still exist....but no one will be able to fill it or wants to--- so where exactly does that leave Ohioans? Darn out of luck!!

******VOTE NO on ISSUE 5****

Anonymous said...

What I love about Payday loans is that they are meant to be short term and can help in a tight situation if you are running a little short on cash during the month.

Anonymous said...

These are some very good points I never really thought to much about this issue but what the state is trying to do is wrong.It's none of there business.Who even started this stupid law.It's called freedom .....You got my vote

Casey said...

** VOTE NO on ISSUE 5!!**

Jeff said...

Payday loans are a great source of cash in an emergency. Be sure to do your home work and understand the terms of repayment. If you find yourself unable to pay off the payday loan without taking out another payday loan then you should establish a budget and stick to it. Payday loans shouldn't be used for the long term. Here's a couple of good places to start doing your homework: Good Payday Loans and Instant Payday Loans Now

Anonymous said...

The charges on Payday loans are less expensive than bouncing a check or paying late fees. It's also a great option for someone who doesn't want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.

Anonymous said...

The govt isn't telling you how to spend your money, they are trying to make it cheaper for you when you need money. But now that I'm finding that issue 5 didnt do a thing for us, I'm pretty upset.