Category: Ohio

I think this is a very good letter by Lawrence Meyers. Please check it out here.

The Ohio legislators are taking the moral high ground on payday loans. They’re obviously not looking at the facts. You have to question their motives when they are so adamant in getting rid of payday lenders. The Red Herring are banks and their overdraft fees.

Lawrence also sites two reports that educate people about payday loans. The Morgan report is here. It claims that households in states that have banned payday loans have higher overdraft fees. The other report, “Study by Yale and Dartmouth Economists Finds High-Risk Borrowers Benefit From High-Rate Loans: Borrowers see wide-ranging long-term benefits” basically says it all in the title.

You can read other posts by Lawrence here.

There’s talk of a few bills out there that would make a cash advance even tougher to give the Columbus Dispatch reports, “Bill planned that would target payday lenders’ loopholes.”

Rep. Matt Lundy is proposing a bill that would make loans less than 90 days impossible to give.

Any proposed bill will stop lenders from cashing their own checks.

Here’s the deal. If lenders can’t make money, they’re just going to close shop and no one gets a loan. They need to realize that the demand exists.

I thought this was an interesting quote in the Hudson Hub Times:

A Democratic state lawmaker who sponsored legislation last year to limit
high-interest payday lending said March 11 he was embarrassed that the
storefronts continue to operate throughout Ohio.

Why would a state government want to put an industry out of business? Why stop at 28%? Why not make the interest rate cap at 4%? My point is who has the right to set interest rates? The answer should be no one. It’s called a free market.

Now, if they really wanted to help people, they would regulate the collection practices. Borrowers should just get locked out of the system until they pay. This should not be driven by a state database. It should be left to the private sector by companies like Teletrack and CL Verify.

Attorney General, Richard Cordray, speaks up in Ohio. It seems they have an issue with the new business practices of the former payday loan companies.

The big issue, at the center of all this, is that lenders are cashing checks from the proceeds of a loan for up to 10% of the face value and in some cases pressuring the borrower to do so.

The lender is put in a difficult predicament. If he does not cash the check, can he stay in business making $15-$45 per loan? The loan losses could be too much.

I spoke with an Ohio Lender and he’s annoyed with other lenders charging 8-10% to cash their own check. He makes an excellent point about convenience. He thinks the borrower should pay for the convenience of not having to wait for the check to clear in his/her account. He thinks lenders should be able to charge atleast what they charge for a government check, which is around 3%.

Anyone that’s following the Ohio drama knows the situation. I have two smaller issues and a bigger one with this article.

Small issue number is that the law prohibits lenders from charging interest rates above 28%. An annual percentage rate is not an interest rate. The APR is the present value of the future cash flows of the payments. Although, the cost of credit is still the same as before the interest rate cap, the interest rates are still below the 28% cap. What people do not realize is that the lenders in Ohio are following the law. IT IS NOT A LOOPHOLE. They’re operating under two other, non related laws.

Issue number two is the Ohio Attorney General, Richard Cordray’s response, “We have been receiving complaints from consumers, and from them we have discovered that some lenders are still charging fees and interest on small loans that may add up to an annual percentage rate of in excess of 300 percent. “This is substantially equivalent to the fees charged by payday lenders under their previous business model.”

Instead of saying, don’t take the loan out if you do not like the terms, he’s going to write a letter and try and force people to lend money below a 28% APR? It’s probably going to be law suits. What a great use the tax payer dollars. This leads into the the major problem I have with the article.

If the state thinks that 28% payday loans are so profitable, why don’t they offer them. They can use this money to chip away at their budget deficits.

I am all for a level playing field, but the legislature is taking the wrong approach. A hybrid between interest and fees would solve many components of what people have a problem with this industry. Maybe allowing a substantial fee to be charged on the first loan and then any rollovers accruing interest at an interest rate that makes sense to lenders.

In Ohio a bill was passed to cap interest rates. Fortunately, for short term lenders, this cap does not apply to annual percentage rates.

Lenders, formerly offering payday loans, are offering loans under two seperate laws that allow for certain fees to be charged in connection with a loan. These fees range from 15-25 dollars for loans up to $500 and 30-40 dollars for loans $500 to $1000. If the borrower wants the money immediately, they can pay a check cashing fee to the lender.

Jim Siegel of the Ohio Dispatch writes in his article titled, Agency suggests it can’t stop lenders from using older statute.

“The Ohio Department of Commerce told state legislators yesterday that if
they think there is a problem with new payday-lending regulations, the fix needs
to come from the General Assembly.”

Let’s face it, 28% is never going to work. Lenders need a way to add more fees. The cost of doing business in this industry is just too hight.

Ohio capped the rates at 28% and the people voted down payday lending last November. No longer will anyone charge more than 28% annual interest on a loan. Now, there is a payday loan alternative.

Some feel as if the people had finally spoken, but this doesn’t mean they got it right. I’m sure many issues were initially not popular before they become law. For example, it took seventy years for women’s activist to finally get the vote. Today, this would be an abomination.

Now, I’m not saying that payday lending and women’s right to vote is the same type of issue, but the popular thing is not always the right thing to do.

Fortunately, for Ohio lenders, they can still charge an orgination fee between $15-30 and, in some cases, a $10 credit investigation fee. If the borrower wants his or her money “on the spot”, they will have to pay a 3-5% check cashing fee to get it.

Call a a loophole or call it following the letter of the law, we’ll see how this will unfold in Ohio. For the record, the interest rates were capped, not the APRs. These two items are not the same thing.