Voters kick payday lenders to the curb in Ohio, Arizona…
There’s obviously many election stories still coming out from Tuesday’s results, but one that I’ve been following has been ballot measures in Arizona and Ohio designed to limit how much interest payday lenders can charge. In Ohio, voters approved Issue 5, which caps interest rates on payday loans at 28% by a 2/3 majority, despite a glitzy website and lots of ads that warned of all sorts of problems if the measure was approved.
Yesterday, Cash America (CSH), a large payday lender in the state put out this press release bemoaning the results and noting that it would now be forced to close 43 branches in the state “leaving about 150 of our hard-working coworkers without jobs.” The 43 branches represent about 1/3 of Cash America’s operations in the state. In the release, CEO Daniel Feehan noted that, “As an industry, we did everything we could through efforts like the ‘Vote NO on Issue 5’ campaign to avoid loss of jobs and credit options, as well as to prevent negative economic impacts in the state through the loss of jobs and the closing of many places of business.”
Cash America wasn’t the only payday lender to issue a woeful-sounding presser. This morning, Advance America (AEA) issued this release saying that it planned to keep operating its 244 branches in Ohio under a state-issued “small loan license.” But there was a caveat in the release: “If, however, Advance America determines that it is unable to implement an economically viable alternative loan product in Ohio, it may close some or all of its centers in Ohio.”
Other payday lenders in the state have yet to weigh in. About 15 states essentially prohibit payday lending by setting caps on how much interest the companies can charge. As I first wrote in Slate several years ago, interest rates can easily top 1000% by rolling over loans time after time.
In Arizona, Proposition 200 which would have extended the ability of payday lenders to operate in the state beyond July 2010, was defeated with about 60% of voters voting no.
The Center for Responsible Lending, which spends a lot of time focusing on payday loans, issued its own release yesterday hailing the votes, noting that, “You can get no clearer message than a huge majority of voters rejecting 400 percent interest loans. A reasonable two-digit cap is sensible, fair, and it works to keep bad apples out of the consumer lending arena.”
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November 6th, 2008 at 2:35 pm
This is an overwhelming victory for Ohio’s consumers. Over 3 million Ohio voters strongly repudiated 10 years of predatory payday lending and asked for a return to fair and responsible lending! This is a positive development for Ohio’s families, communities and economy!
November 6th, 2008 at 9:02 pm
Apart from those who might lose their jobs if payday lending were to cease, maybe a better victory would be no loan availability at all. Consumers can’t get trapped in a vicious cycle of debt if it’s not offered in the first place. Isn’t unmitigated borrowing one of the addictive behaviors that we as a country need to wean ourselves from?
November 7th, 2008 at 1:44 am
OK, I’ll be the heartless libertarian on this one….
If consumers are in such dire need of money that they’ll pay 28%, then it’s only reasonable to imagine that there are even *more* distressed borrowers that will pay even higher rates. Without the regulated, somewhat reputable pawnshop or payday loan provider, these people will end up on the black market with the mob. And instead of repossessing things or garnishing wages, they’ll have truly devastating social consequences — death and kidnapping.
Second, these interest caps are the first step back to Dark Ages papal usury laws. There’s a reason most credit card companies base operations in South Dakota — no usury law.
Third, the commenters that say capping the rate will avoid a vicious debt cycle have muddy thinking. A legal cap is an implicit subsidy, and will *encourage* more self-destructive borrowing, because the consumer won’t feel the true market price of outrageous borrowing, only a “reasonable two-digit cap.”
November 7th, 2008 at 12:36 pm
It’s really sad that you are willing to put hard working american out of a job because you dont’ like the intrest rate the payday loan industy charges. Well if you don’t like it you don’t have to use it. Worry about yourself and not people who really need this service. Why not focus on more important issues like how this country is going to pay all that unemployment when are deficit is already high. And where are these people going to fing jobs when there are not job right now.
November 7th, 2008 at 8:19 pm
Why are people so concerned about the APR of a payday loan? The APR is not a realistic way of looking at a Payday loan. A payday loan is until your NEXT payday. $8 per $100 per week is a great deal when you compare it to returned check fees and late fees on utility bills. Do you ever hear about people losing their house because of a payday loan? No! They lose their house from credit cards that have ridiculous credit lines.
November 8th, 2008 at 12:04 pm
Sean,
Proscriptions against usury are found in diverse legal and religious traditions and predate the papacy. Why? Because usury is immoral. ALL legal systems invalidate agreements made under duress.
Your first argument, “We need to legalize it so we can regulate it” can be made against any illegal activity and doesn’t address the merits of the issue of usury.
Your second point is true enough.
Your third point has me scratching my head. Who is subsidized by a cap on interest rates?
I agree that entering into loans with usurious rates is self-destructive, but in the case of predatory loans education/term disclosure seems a more reasonable remedy.
In fact, I think the best libertarian argument to be made in favor of usurious loans is to promote the consumer protection model. Under such a scheme, payday and other usurious loans are legal when accompanied by a clear declaration of the terms of the loan and what practical effect the loan will have (this loan will have a term of 399 years. . .). Unfortunately, consumer protection models have become a joke–read any of the ‘disclosure’ notices from your bank/credit card company lately?
Harvard Law professor Elizabeth Warren writes eloquently on this and related topics.