Sunday, August 17, 2008

Ohio Payday Loans

It is no surprise that even national television shows like Bill Moyer's journal and others have featured segments on the State of Ohio's Payday Loan businesses recently. These overnight lending or short-term lending facilities have been charging rather absurd interest rates to anyone willing to subject themselves to what may best be termed "credit for the desperate", but is sold as a short-term "advance against future earnings".

These Ohio payday loan companies had been allowed to charge nearly unlimited interest rates, up until quite recently, where their annualized interest rates would reach nearly 400% (391% I believe). But after quite a drawn out fiasco, the Ohio legislature finally reached agreement earlier this year to pass a law limiting those exorbitant interest rates to a meager 28% (meager is sarcastic here folks!) It only took the discovery and public news of (the usual) rotten political lobbyist connections (to State officials) to embarrass the Ohio government into pushing through a law that was previously going nowhere fast.

Here's what I think about these "payday loans" in general: fact is, if someone that wants to borrow money is such a credit risk that a 28% interest rate won't cover the potential losses and give you a bit of profit in addition, you shouldn't lend money to them anyhow. But, of course, the real objective with these Ohio payday loan companies has not been to make sure they make good loans, smart loans, affordable loans, or reasonably priced loans that can be repaid with relative certainty... the objective instead has always been to get the must vulnerable people hooked into a short-term revolving loan system that is incredibly lucrative and never ends.

This is essentially just another chapter in the Ohio predatory lending pursuits, though of a different nature than the other well known and nationally publicized mess known as subprime lending that really showed itself early here in Ohio when compared to the rest of the Nation. Oh, and in case you didn't know, the Republican legislature in the early 2000's made sure they overturned a Cleveland, Ohio law against such predatory lending practices on the grounds of arguments like: who are we to say we can do a better job managing the loan business than the free market and private sector? Of course, we know where this lobbyist and special-interest driven legislative push at the State level ended up taking Ohio over the coming years! (by the way folks, there are video tapes of the various Republicans in the Ohio House and Senate earlier this decade making these speeches to protect their backers' interests - again, Bill Moyer's show broadcast these videos for all to see and remember recently, since it is unlikely the politicians will be showing you proof of what they said in the past).

Well, you'd think perhaps this time we learned. The warning bell was sounded in Ohio in the subprime mortgage meltdown mess WAY AHEAD of the National alarm. And, the State of Ohio government simply made sure they did their part to not allow something as troublesome as a City law (Cleveland's anti-predatory-lending one) get in the way of "progress" or "free markets" or "capitalism" or what have you. So, this time around, having looked really bad (or, perhaps simply corrupt) in the recent past (oh heck, and again now with the lobbying connections!), Ohio pushed through this new Ohio Payday Loan interest rate limits law.

But, trust me, that Law is nothing short of a well choreographed measure to make it LOOK like they are trying to do what is right. I say this because now, here in Ohio, we are bombarded with the TV Commercials from special interest groups that call themselves things like "Financial Freedom Ohio" or "Ohioans for Financial Freedom" or some other such sickly misleading label for nothing short of what should be called REINSTATE ULTRA-HIGH PAYDAY-LOAN INTEREST RATES AND CALL IT "FREEDOM" GROUPS. Here we go again...

Do not fall for this hype (aka, CRAP) people. Be very concerned whenever you see labels for such political action groups and lobbying groups use nebulous terms like "FREEDOM". The only freedom desired by the Payday Loan Businesses in Ohio is the freedom to charge whatever they want, and the freedom to do so with little to no fear of being reigned in until this turns into yet another massive national issue where the Federal Government has to get involved to "fix" (or bail out) someone or some business (well, a massive number of someones or businesses by then of course).

Please, everyone, remember the last bill of junk we were sold here in Ohio when the "free market economy" was allowed to play out via predatory sub-prime lending. Fact is, if you own a house in Ohio, you are probably paying the price for that in the way of reduced home values. Heck, it spread like a plague throughout the entire nation, so again: wake up and say NO to this push to create yet another wave of mass sub-prime lending that takes advantage of those who can least afford insanely high interest rates. Fact is, when the people that take out 400% loans get into dire straights, all bets are off and anything is a reasonable action for paying back the loan, including stripping the copper pipes out of a house, the aluminum siding off houses, removing catalytic converters from cars, or any other act of desperacy to "stay afloat".

Sure, some people can get themselves out from under these types of loans without resorting to anything illegal or immoral, and without begging, borrowing, or stealing, but the fact is that this business of short-term high-interest loans will provide zero-to-little benefit to anyone over the long-term. The payday loan firms in Ohio and everywhere else do not want customers that can borrow once, pay back a loan, and never return... they want life-long indentured customers that ensure them a steady cash stream forever via the bindings and chains of ultra-high interest rates.

If you really feel strongly about "financial freedom" and allowing loan businesses to charge rates otherwise illegal (you realize your credit-card firm can't charge nearly the rates desired by these payday loan organizations, right?), I have a few simple thoughts I want you to consider.

First, I sure hope YOU never require a loan so desparately that you would take on outlandish interest-rate terms that will cause you to forever be in their grasp.

Second, if you say "I will never need to", great! Now, how about considering the fact that someone else may, whether for reasons acceptable to you or not, find themselves in a position where they see a payday loan as their only option, after you have decided to lend your support to the current Ohio lobbying movement to reinstate and allow essentially unlimited interest rates to be charged of that borrower.

Sure, it is not YOU, so what do you care? Search yourself here, and ask: is it even slightly acceptable to allow someone to pay an interest rate for a small loan, that if continually renewed, levies a nearly 400% annual rate? Borrow $100, and owe $500 if you take a year to pay it back. Better yet, if you know someone in this situation, maybe you should consider the possibility that by risking $100 (and personally lending that person the money), you could perhaps save a person from a situation they can never dig themselvs out of. And, for what? The cost of a couple tankfuls of gasoline?

I can't help thinking how credit in America has changed over the decades - both in the ease of credit, and the attitude towards credit. When I was a child, I remember my parents and grandparents thinking that ANY credit was a last-resort measure, and that any credit to be obtained was only done so under the utmost of need and kept to the absolute minimum required. Additionally, credit was first looked upon as something that with luck, some inter-family borrowing could help with. And, because of the absolute conviction by which all credit repayment was to take precedence over other expense-priorities, everyone involved just knew that people were good for their word and would ultimately pay back any loan given. Wow, have things changed! If only people still treated their finances, loans, and the repayment of loans with such responsiblity, I doubt the concept of a Payday Loan would ever have come to exist in anywhere near its current magnitude. Certainly it would never have become an industry with the power to essentially buy the legal outcome they want.

So, let's not make things any worse than they already are. Fact is, Payday Loans and other cash advance loans are probably here to stay, as is the day of rather lax credit and an overwhelming "need" people have in general to spend beyond their means (exacerbated by inflation and wages not keeping up with inflation of course, but also as part of this modern "must have everything NOW" culture that is mixed in).

So, when someone has to obtain that cash-advance loan for whatever the reason, let's at least consider Ohio's latest law (the one being challenged by the special interest groups) reasonable when they cap such loans' interest rates at 28%. Next, if you have the chance to help someone avoid this payday-loan mess to begin with, do so. And, even if you can not offer someone direct financial assistance, offer them advice and help them understand finances and options for improving their situation... even that can be a help.

13 comments:

John said...

Finally, someone is willing to call the payday lobby's bluff and critique their mantra of "financial freedom." 391% is not freedom and Ohio's House Bill 545 is one of the best consumer protection bills in the nation. If you believe in real predatory payday lending reform, vote yes on issue 5 in November! http://yesonissue5.org.

Mike Eberhart said...

john,
thanks for that link and your feedback. I'm glad to know there is an effort underway to keep these special interests at bay.

I really think everyone needs to read that ballot language and see clearly what a YES vote on Issue 5 is needed. The alternative is essentially no regulation: i.e., just what we started with.

Here's a link to that PDF of Ohio Issue 5 Payday Loan Law text

Mike Eberhart said...

Someone left a comment here trying to actually PROMOTE payday loans by linking from this blog to a payday loan company, and saying how it was an unalienable "right" for people to use such services.

I only stopped the post from showing because of the promotional link. I can argue both sides of this whole thing if I chose to, but the fact is, whether it is a "right" or not is not what I am questioning. I think that abundant access to credit helps the economy AT TIMES, but what I have a real issue with is the lack of caps on interest rates. Sure, personal responsibility is a large part of the underlying problem here, but that doesn't mean there should be essentially no regulation.

Again, I refer back to what the whole sub-prime loan mess has led to (something that nearly EVERYONE has heard about and can identify with now). Much of what cause the decay of that industry was the complete lack of oversight and the predatory nature of the product.

I just do not want to, as a taxpayer, end up on the hook YET AGAIN for another bailout of the masses when this payday loan stuff becomes the next big downward-spiral drag on our economy and finance system.

Trust me: I believe first and foremost that the ultimate responsibility for credit relies with the consumer. But, I have learned over the years that many people have NOT learned even the basics of how to control their spending, and as such, they seem to require some external controls to help them out. Is this ideal? Perhaps not. But, then again, is all this corporate welfare and bailout crap related to Freddie/Fannie right? NO. But, we are all on the hook for it now anyhow.

Mike Eberhart said...

OK all you Payday Loan companies, quit trying to use my blog as a way to PROMOTE your sites. Anyone how tries keyword/link-propagation by linking to their businesses with "payday loans" and such is just not going to have their comment accepted.

If you have something REAL to say here, and want it heard without it being a promotion of your business, I will gladly let opinions through presuming they are not full of swearing, hate, and so forth.

Margaret Cloud said...

You are right about the advance payday they do have high interest rates and I feel sorry for people that have to use them and America is spending beyond their means, could you email me?

John said...

Guess what! The September issue of Money Magazine ranks the 16 best ways to manage your money. The "Worst Way" (#17), is "Go to a payday lender." Notice I say "worst way" - it wasn't included among the 16 because payday lending had it's own category as the worst way.

From the article:
Pros: None
Cons: Annualized interest ranges from 200% to 500%. Are you out of your mind?

If Money Magazine thinks you have to be crazy to take out a payday loan, something tells me it's not a great idea!

The payday lobby is spending millions in Ohio to convince voters that we need 391% interest. I don't think Ohioans are going to buy into their logic about freedom, choice and 391%. They just don't belong in the same sentence.

And again, I urge your readers to join the campaign to end predatory payday lending in Ohio: http://www.yesonissue5.org.

Thanks for speaking out!

Mike Eberhart said...

john, thanks! That is a nice piece of information to back what I'm saying here. I'm glad there are some bigger name news sources drawing the same conclusions.

margaret, thanks for commenting. May I ask what you would like me to email you about? Leave a comment and I will not let it show if you don't want it to (I have moderation enabled). thanks.

Rocio said...

With kids going back to school and my pay check not coming in until next friday, I took out a Payday Loan for two weeks. Payday Loans great becuase I didn't have to use my credit card and bought everything I need to get my kids back to school.

Mike Eberhart said...

rocio,
OK, if this really got you out of a bind AND you do everything possible to make sure not to "roll" that debt forever, so be it.

My gut says you probably work for a payday loan company and are trying to make them sound good though. But, regardless, if you ARE a payday loan user, and the service is a decent on, you certainly have to support reigning in the interest-rate, and as such you surely can't support a 400% annualized rate, right? If you say yes, I will nearly 100% be convinced you work for a payday loan firm. I have yet to find customers in ANY business that want to be subject to higher costs... it just doesn't happen.

Well, good luck, and pay that thing off ASAP. Even if you need to borrow from friends or relatives, I'm sure they can give you better "terms". Heck, if you are good for your word and have good credit history, I would think your family would know that. If you are not so lucky as to know *anyone* willing to lend you money, again I say: support caps on these loans. And, start putting some money away even if a few bucks a week so with luck you never have to give in to these insanely-high borrowing rates.

John said...

Mike,

Here's a new video with even more evidence of the payday lobby's deceptive tactics in Ohio: http://www.youtube.com/watch?v=zDoeXujagE4

The out-of-state lobby is pulling out all the stops in attempt to hijack Ohio's election in November. They are spending millions on TV ads and training petition circulators to lie to voters.

They should simply tell the truth! Passage of the referendum in Ohio will allow business as usual to continue at 391% APR.

Pass this video along! People in Ohio need to know that they are being taken for a ride by the payday lobby!

Mike Eberhart said...

No matter how many times I tell payday loan companies to NOT try to post comments here with links to their businesses, they still do.

The latest was arguing that it was wrong to let the government regulate such loans. Again I say: look what a total lack of regulation in the sub-prime market got us! And, if you are really against regulation, well guess what, I will bet that your life is filled with products and services that have some form of regulation imposed on them already that you are "OK with" because it serves you just fine.

Regulation in and of itself is not a terrible thing, IF it is used to prevent markets from going awry (as in the latest subprime debt fiasco). Gee, regulation is over the Freddie Mac and Fannie Mae industry, which you probably count on for obtaining a mortgage with ease in this country. Regulation exists for insuring your bank deposits, though you take that for granted perhaps. Regulation exists everywhere.

We have things like the transportation safety regulatory agency. Should such regulation be abolished and let every airline, etc do whatever they want without regard to your safety? Sure, it is different, but again, it is meant to just provide a framework from within which companies must operate as is seen prudent by the government (which, is in theory representative of the population at large... though, with special interest lobbying funds lately, that theory is being pushed to extinction).

Enough said for now. Fact is, SOMETHING must be done to keep this payday loan industry in check so as to avoid further financial meltdown in the subprime and low-to-middle income markets.

Clancy said...

Why So Much Money?

http://www.huffingtonpost.com/phil-bronstein/happy-now-is-obama-optimi_b_159213.html

A lot of people have supported Obama's Presidential campaign. They have high hopes from this man, who has risen from obscurity to assume leadership of the most powerful nation of the world.
However, one thing that has left a lot of people confused is that why has there been a requirement for so much of money to run his campaign? Sure such things need money, but so much of it? ……… that’s a point to consider.
After all, at a time, when America is facing the worst possible, shouldn’t political campaigns and other such things have been a bit low profile so that the common man got his three square meals. In such a scenario, doubts of a fund raising racket do crop in the mind. But for now, let’s just pray that our hard-earned money has been put to good use and our new president will bring back the lost glory of our nation

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