Crescent-News.com - Issue 5: State voters to decide to limit payday lending

By MARC KOVAC

C-N Capital Bureau

COLUMBUS -- State Issue 5 asks Ohio voters whether they support or reject legislation approved earlier this year to limit payday lending in the state.

The focus is House Bill 545, which was the result of months of deliberations that included standing-room-only committee hearings and Statehouse protests.

Under the former section of Ohio Revised Code, check-cashing lenders could provide loans of $800 or less. They could not make new loans to customers who had outstanding ones. And they could charge interest plus additional origination and other fees, according to the state's Legislative Service commission.

Combined, proponents of the law change say the resulting costs equaled an annual percentage rate close to 400 percent.

Under HB 545, the maximum loan amount would be capped at $500, with repayment terms of at least 30 days. The annual percentage rate charged for such loans would be capped at 28 percent, with no provision for origination fees.

The bill also limits borrowers to four payday loans per year, prohibits them from taking out a new loan to pay off an old one and requires consumer education courses for those who take out two loans within a three-month period.

And it calls for the creation of a statewide database of loans, through which licensees would submit information about borrowers, to be used "to determine if a borrower is eligible for a loan," according to the Legislative Service Commission. (That database would not be open to public scrutiny, however.)

Opponents of the new law (online at ohioans4financialfreedom.com) have said the bill will devastate the payday loan industry, likely closing locations and costing 6,000-plus Ohioans their jobs.

They also have questioned where people strapped for cash and facing emergencies would go for smaller, short-term loans.

The legislation would hit businesses like CheckSmart, which has about 100 locations with about 750 employees around Ohio, said chief executive office Ted Saunders.

The company has been in business since the late 1980s, offering check-cashing, bill payment, wire transfer and other financial services.

Company officials were among those who worked with lawmakers in the mid-1990s to develop the payday lending law that has been on the books.

"Smart regulation is good for the industry," Saunders said. "We don't want people out there taking advantage of customers."

Other financial transactions carry the potential for larger fees -- bounced checks at the bank he uses run $39, plus $5 per day until the total is repaid, Saunders said.

"The customers are not unintelligent," he said. "In fact, they've looked at their financial (options) and said this is a better deal for the spot I'm in, and they use it. ... With any product, people can abuse it. But the reality is the people who abuse it are the small minority."

Under the former law, payday lenders netted about $1.50 for every $100 loan, Saunders said. Under the new law, payday lenders would be operating at a loss.

"If the voters were to vote 'yes,' we would be out of business," he said.

But proponents of the new law (online at www.yesonissue5.com) believe changes are needed to stop the proliferation of payday loan storefronts and protect residents who get trapped in borrowing cycles -- taking out one two-week payday loan after another and getting strapped with high fees and annual percentage rates.

"The simple truth is that payday lenders are asking Ohioans to allow them to continue charging (391 percent) interest for a typical two-week loan, despite the exhaustive legislative deliberations over the past year and despite the position of the governor, the speaker, the senate president and the overwhelming number of the Ohio General Assembly, Tom Allio, chairman of the Ohio Coalition for Responsible Lending, told reporters earlier this summer.

According to proponents' arguments, submitted as part of the Secretary of State's Ohio Issues Report, "Payday lenders prosper by trapping vulnerable Ohioans into a cycle of repeat borrowing. Their neon signs offer the false hope of a quick fix but instead borrowers typically end up with 12 or more loans each year."

The issue has drawn bipartisan support, including a recent joint statement from Gov. Ted Strickland and Senate President Bill Harris, a Republican from Ashland.

They said, "Don't believe the payday lenders' misleading TV commercials. Issue 5 is not about jobs or financial freedom. It's about protecting consumers and communities from payday loans with 391 percent annual interest. A yes vote on Issue 5 is a vote for Ohio's new payday lending reform law and a yes vote on Issue 5 is a vote to lower the interest rate on payday loans. The issue is simple. The ballot language is complicated."