Payday lending controversy hits the airwaves

By Mike Ford, The Delphos Herald
Published:  Tuesday, August 26, 2008 (1 year, 6 months ago)
Print

“I’ve been studying this payday issue and you wouldn’t believe what our politicians have been up to,” says a “farmer” in a recent television ad.
The actor is seen standing near a red Chevy pickup truck on a dirt road next to a corn field. The “payday” issue he refers to is actually payday lending.
The loans are high-interest, short-term loans for which borrowers write a personal check. Then, the lender waits until the customer earns his or her next payroll check before the personal check is cashed.
The Ohio General Assembly and Governor Ted Strickland recently changed the laws governing the payday loan industry, capping the interest rate at 28 percent and limiting the number of loans to four per year per borrower.
The advertisement is the effort of a special interest group called “Ohioans for Financial Freedom,” which needs 241,365 valid signatures to put an issue on the November ballot that would negate either all or a portion of the referendum.
There is also another similar advertisement airing which makes the point of “financial choice,” stressing an individual’s right to pay $15 for a two-week $100 loan.
According to another special interest group, there is much more to the story.
“The payday loan industry has become little more than legal loan sharks that work  by a model that cannot survive unless people get into a debt trap and come back to them for loans over and over again. They get repeat borrowers and as a result, the typical two-week loan ends up with an interest rate of 391 percent APR. When you have interest rates that high, it hurts many more people than just the borrowers; it puts a strain on everybody,” said Sandy Theis, spokesperson for the Ohio Coalition for Responsible Lending.
Theis calls payday loans “a dangerous product” designed to take advantage of the less-fortunate. She says the state’s actions to address repeat use while retaining payday loans as an option was the right thing to do.
“I think this was a real common-sense solution to a terrible problem in Ohio. People will still be able to borrow money. There are lots of things that government regulates because they’re dangerous. It regulates what we do with our cars, roads and prescription drugs and payday lending is another example,” she said.
Fourth District Representative Matt Huffman agrees payday loans are not the best financial choice one can make, but voted against the referendum. He makes the choice-related argument raised in the television commercials.
“I voted against it because I think, in some instances, it’s a product people want to have available. I don’t see a lot of difference between these loans and what happens with credit cards where people get a $5,000 line of credit and pretty soon, they’re maxed out and at 19 percent, can never pay it back. Let’s be clear: this is a bad option but it may, at times, be folks’ only option. If they need to make a child support payment or they have a medical bill or some doctor says you have to have $150 up front before he’ll see you. There are different cases where this is appropriate and most people pay it back on payday,” he said.
Other media reports have recently highlighted controversy over the practices used by those gathering signatures. Some have accused those involved of lying and even paying homeless persons to sign the petition. While authorities sort through the issue, the Ohio Ballot Board is working on language for November that will not inform voters of the 391 percent interest rate. Huffman says this was the right course of action.
“It’s misleading to say it’s at a 391 percent interest rate. It’s similar to going to an ATM at a bank other than your own to take out $100 and they charge you $2. Well, that’s one day’s worth of interest and you can say that’s extremely high but it’s really just a question of what somebody is willing to pay for a service. That’s why it’s confusing to say it’s 391 percent and that’s only one example. That’s why they had to take that out of the ballot language”, Huffman said.
“The people who want to keep this in business make a lot of money and don’t want it to sound so bad. This is a really bad financial product. It’s a bad thing for people to do but it’s a lot worse to pay $4 for a .12 ounce drink at the movie theater when you can buy it for $.35 wholesale, for example. The state rips people off more with the lottery than payday lenders do with these loans.”
Aside from opposing sides telling voters “half-truths,” Huffman says it is always up to voters to do their homework.
“Anybody can claim to have a deal that will knock your socks off. It’s up to voters to educate themselves; people often think because they see something on television, it must be true. Well, not really,” Huffman said.

0 Reader Responses to “Payday lending controversy hits the airwaves”

Complete the form below to leave a response of your own.