PSA for my Ohioans- Payday Lending Bill

I know some of you have heard this rant before and all, but it's important. And important to understand what's really going on, because there is a LOT of misinformation going on with this bill.

There is now a law in Ohio that says that payday lenders can only charge a maximum of 28% interest on their loans. Previously, they charged up to 391% interest. I'll let that number sink in a second- Three Hundred and Ninety-One Percent. The new law also requires loans to be for no shorter than 31 days, much like a credit card.

The payday lending industry, not surprisingly, is not happy with this law. They are petitioning for the law to go on the ballot in November as a referendum. That is, of course, their right, and it is the right of everyone to make up their minds individually as to whether they think this is a good law or not. HOWEVER- the payday lending industry is using some questionable tactics and some questionable information to get this referendum on the ballot, which may be one of the things that irks me the most.

You may have seen a commercial where a farmer or a mother says that the lawmakers are trying to take away "our financial choices" or "eliminate 6,000 good paying Ohio jobs". That's not exactly what is happening. The law does not prohibit payday lending. The law limits the amount of interest that payday lenders can charge. The payday lenders are saying that they can't operate on only 28% interest, and this law will effectively close them down. Whether that is true or not, I can't say. I know a good deal about payday lending from the borrower's point of view, but less from the lenders' point of view. However, I will point out that payday lending in and of itself is predatory lending and also is limiting of financial choices. Here's why:

As the commercials say, you can borrow $100 and "it costs $15". This is true. What the commercial is not saying is that you are borrowing that $100 against your next paycheck and when your paycheck comes in, you have to pay $115 to clear the loan. So, then your paycheck is short by $115. What happens next? Well, if you've been living paycheck to paycheck and your expenses are right up to the limit of your check (or beyond), this means you're not going to be able to afford all your expenses, let alone any other unexpected things that come up. So, you either roll the loan over for another week or wind up getting another loan. The interest keeps accumulating, and you keep being short on your check because you have to pay something on this payday loan, which means you keep being unable to make ends meet. It's a cycle that is extremely difficult to break free of (not unlike credit card debt, but that's a different story. Trust me, it's easier to get out of credit card debt than it is to get out of these payday loans). And the people caught in this cycle are overwhelmingly low income households. They are not the sort of middle class people that the commercials portray. Why? Because the middle class and the higher income households have more financial options. Credit is easier to come by for people with moderate to high incomes because banks and credit card companies see them as a better risk than someone who is making 30 to 50% of the area median income. Also, higher income households just plain make more money and can potentially have more room to cut back on expenses in an emergency. You can do without cable for a couple of months, for example. It's harder to do without food.

I expect the commercials to be one-sided. I also expect them to lay out information in a way that supports their view- it's how political ads work. They happen to be targeting people who may not have any experience with payday lending, which is why I felt it was important to point out how payday lending is predatory and limiting of choices. That's not the real problem. The real problem is that there are signature gatherers for the petitions to put this on the ballot that are spreading misinformation in a variety of ways. Most of them probably don't even know they're spreading misinformation- they're doing what they've been told to do. The petitions are being represented as a way to save jobs in Ohio- they don't say anything about the lending or the bill itself. Some signature gatherers have said they're working for the State of Ohio, which is not true (and it may be illegal to misrepresent who you're working for when you're gathering signatures, I'm not sure). The payday lending industry denies these misrepresentations are taking place, but aside from the fact that I'd be suspicious of that denial anyway, I know people who have been approached with these petitions by signature gatherers who were presenting misinformation (full disclosure- I have not seen a petition as yet). In my mind, that's not on. It's unfair to the petition signers for them to not have an understanding of what it is they are signing.

Oh, and as one last note, the payday lending industry got the Secretary of State for Ohio to put language on the ballot where if you vote "no", you are actually voting *for* the repeal of the law. It's obfuscation, which I believe also has no place in a ballot (I'm fighting a losing battle there, I know).

So, this is all to say, be aware of what you are looking at when you are considering your votes this year. I'm not going to tell anyone to vote against the payday lenders- for one, I'm not allowed to do that sort of thing by the terms of my job (I'm giving information here; education is fine, lobbying is not). For another, I think people should make up their own mind. Just be educated when you make your decisions.