Crescent-News.com - Issue 5 centers around payday lending reform

By JACK PALMER

Ohio voters will determine the future of the state's payday lending business by their collective verdict on Issue 5.

Voters should pay special attention to the ballot language.

A "yes" vote represents a vote to keep in place the state's new payday lending reform law enacted earlier this year, which caps the interest rate on payday loans at 28 percent. It has yet to take effect, pending the result of the ballot issue.

A "no" vote allows lenders to continue their present rate schedule, which typically charges $115 for a $100 loan, payable on the borrower's next payday. Payday lenders may lend up to $800.

The issue's language does not mention a 391 percent interest rate ($15 for a two-week loan of $100). It merely tells voters that if they vote "no," payday lenders would be able to charge rates and fees that "substantially exceed" a 28 percent annual rate.

Those who advocate the passage of Issue 5 argue the new state legislation will protect individuals and families by ending the payday lending debt trap. Studies show that the average payday lender takes out 13 such loans per year.

Gov. Ted Strickland, House Speaker Jon Husted and Senate President Bill Harris have come out in favor of Issue 5, as well as both state attorney general candidates, Rich Cordray and Mike Crites.

They are joined by the Ohio Farm Bureau, Ohio Municipal League, Ohio Manufacturers' Association, Ohio AFL-CIO, Ohio Education Association, AARP, National Association of Social Workers-Ohio Chapter, Sojourners, Cleveland Branch of the NAACP and Habitat for Humanity.

In a recent video produced by Ohio Farm Bureau, spokesman Joe Cornely said his members were insulted by the payday lenders' first commercial depicting an Ohio farmer asking voters to protect his "financial freedom" so that he can buy a new $100 belt for his truck.

"Farmers don't even have paydays," said Cornely. "Payday comes sporadically for the farmer, throughout the year when crops or livestock or sold."

The "no" contingent, which includes the Ohio Chamber of Commerce, asserts that Issue 5's passage will result in the loss of 6,000 jobs and deprive residents of sorely-needed financial flexibility.

"The Ohio Chamber champions free enterprise and economic competitiveness and (the new payday lending law) runs counter to our mission," said Andrew Doehrel, president and CEO of the Ohio Chamber of Commerce. "This new law, if not reined in by Ohio voters, will drive an entire industry and 6,000 good-paying jobs out of our state."

"It's easy for wealthy politicians and activists to dismiss payday lending, in large part because they have never been in a tight financial position themselves," added Ohioans for Financial Freedom, an advocacy group which filed the requisite signatures to place the referendum on the Nov. 4 ballot. "The truth is that many hard-working Ohioans do not have sufficient savings or disposable income to use as a safety net when unexpected expenses occur. A payday loan is very often the most affordable option to cover short-term expenses for these families."

While payday lending industry in rural northwest Ohio includes major chains such as Cashland, Advance America, Check Into Cash, and First American Cash Advance, it also includes locally-owned businesses such as Barbara's Financial Services.

"We're just the little guy, your basic mom-and-pop operation, but we've been affected, too," said Greg Hughes, controller of Barbara's Financial Services. "We've closed 13 of our 14 offices since this law passed. We've laid off over 30 employees."

Hughes said people take out payday loans because they are a quick and easy way to obtain emergency cash. He said interest rates are high because of the high rate of default.

"Try getting a $100-500 loan from a bank or credit union," said Hughes. 'Even if you qualify, you have to pay a substantial loan origination fee and you can't get the money on the spot. They also still charge you about $30 for every overdraft, even if the check or debit amount is for only $5 or $10. So who's really looking out for everyday people?"

Hughes predicted Issue 5's approval would make the current poor economy even worse.

"Revenues will be down for auto repair shops and grocery stores. There will be more utility shut-offs. It will affect many families' Thanksgiving and Christmas.

"It's also going to affect state revenues," he added. "We pay a $1,500 annual licensing fee for every location. By closing 13 offices, that's $20,000 less to the state right there."

Many of the state's newspapers, however, have written editorials urging residents to vote "yes," including the Akron Beacon Journal.

"(Issue 5) will ensure that borrowers don't fall victim to the slick business model that is payday lending -- dependent on repeated borrowing, one loan leading to another to pay off the previous one," said the Beacon Journal.