Here in Ohio a group funded by the payday lending business is pushing to get a measure on the ballot to repeal HB 545, which when signed in the spring capped the interest rate that can be charged on payday loans to 28%.
A payday loan is where someone needs some quick cash – under $800 – and goes to a payday lender. The user writes a check for the amount plus the fee for the loan that the lender then either cashes in 14 days or the borrow returns to the store and buys the check back. The fee amount is usually $15 per $100 loaned. It works out to be a 391% yearly interest rate.
The lenders are upset because HB 545 will cut into those fees and we’re told that they will have to close their stores – hurting the working poor who are the primary users of the service.
Pro HB 545 people counter that 391% is an outrage and the “service” can lead people in financial trouble into a worse cycle – needing to get more loans to pay off the previous ones. They equate payday lenders to predatory mortgage lenders that have caused all kinds of economic issues for many people.
I sit in the middle of the debate. Both sides have good arguments.
I too, think that 391% interest is inhuman no matter the reason but on the other hand it should be a person’s choice to either get the loan or for a lender to lend the money. $15 per $100 loaned is a lot better than $35 or more for a bounced check.
Could someone get stuck in a cycle of loans? Sure. I know from personal experience that it easy to do it. There was a time when I almost got sucked in, but I went 2 weeks without getting another loan and broke out. It was very hard to do – I remember it meant a lot of mac and cheese dinners and no outside entertainment.
On the other hand – crap happens. Sometimes bills come up outside of your pay check and I don’t know too many creditors who will wait until your next pay day. Many people only get paid every 2 weeks or maybe only once a month – in those circumstances if you already budgeted your money for current expenses – you can’t afford something unexpected.
Try to get a small loan from a bank. They put you through the same checks as if you were borrowing money for a house.
Traditional banks have overdraft protection but you have to have good credit to get it. Writing a bad check isn’t just dangerous fee wise but if you do it too many times you can get into legal trouble.
Also the fees associated with bouncing a check are outrageous – I know this from experience.
Several years ago I missed calculated my balance in my checking account by $3. Seven – yes I said seven – checks were bounced at $35 a pop putting me on the hook for $245 in fees alone besides the $180 in bounced checks. They took the small amount I had left in my savings account and closed my checking account, conveniently after the 7 bounces with through. I refused to pay the fees and they put me on the bad risk list keeping me from even getting a savings account. I figured I would wait them out the five years the black mark would be on my report but then they reissued the black mark after four years by sending another report to Chex Systems.
Payday lenders also provide other important services for those who don’t have bank accounts. Many of the lenders operate check cashing services. For those years I couldn’t open another bank account, payday lenders helped me by cashing my payroll check and letting me buy money orders to pay bills.
While I do think some regulation of payday lenders are needed, HB 545 hurts the consumer.
It should be a choice. Provide consumers the option and let them make the decision that is best for them. It is clearly not for everyone, but nothing is. What happened to personal responsibility? The 391 argument doesn't make sense – it is based on a loan that you would have for a year or more like a home or car – this is for a 2 week loan and $15 for $100 seems very reasonsable considering the alternatives of a bounced check fee, utilities disconnected (which can run over $100!) or late/over limit fees with credit cards. Finally, if consumers didn't like them, there wouldn't be such a demand! Let the market dictate the need and the price!
I work for a payday lender. The repeal of HB 545 will not only protect 6000 good paying jobs, it will give residents of Ohio the freedom of CHOICE to make their own financial decisions based on what works best for them.
I work for a payday lender.The voters and the consumers are the ones who need to decide this issue. People who will never use this service to not understand that hardworking people may need help once and a while.
At 28% what would happen is that the payday loan company would make $1.07 per $100 they loaned out for a 14 day period. I don't know how many people are stretching their payday loans out for an entire year so I'm not so sure they ever reach $391 for a single loan. If you need a loan for a year or more then you ought to be going to a bank, credit union or savings & loan; not a payday lender who is designed for very short term loans with a very quick payback. It's ideal for those needing some extra cash to get their car fixed or pick up a prescription. And at an actual 15% — because $15 on $100 is actually 15% — it isn't too bad for someone who can put in a little overtime to make up the difference. I don't see a problem with payday lenders. If there wasn't a need, they wouldn't exist.