Pay Day Loans and the Elections

More was decided on November 4, 2008 than who would be the next President of the United States: pay day loans also came under fire in two states, Arizona and Ohio.  Just to make things clear, I think these types of loans are the absolute worst.  They have extremely high effective interest rates (up to 391% APY!) and prey upon the economically disadvantaged and poorest of the American poor.  A cash advance, as they are sometimes referred to, are often one way tickets to a life trapped in debt.

Imagine having thousands of dollars in this type of loan with an interest rate of 391% per year.  The interest on a loan of $1000 would be $3910 for the year, so having even $2000 of this type of debt can be crippling to you and your family’s financial health!  Even if you took out $2000 worth of pay day loans and paid them back as soon as you could, you could expect to pay something around $300 for the “privileged.”  This unconscionable and needs some serious smack-downage.

Which brings us to the 2008 elections.  Both Ohio and Arizona had propositions on their state ballots that directly relate to these types of predatory loans.   What follows is some of the background information on what was on the ballot and how voters in each respective State handled these measures.

Ohio and the Ohio Payday Loan Referendum

Pay day loans in Ohio came under fire when the State Legislature passed HB 545 in the Spring of 2008.  In this law the egregious interest rates pay day loans charge were capped at 28%, still very high but significantly lower than the 391% allowed by law at the time.  In response to this, the cash advance industry mobilized an effort to put the section 3 of HB 545 on the ballot for Ohio voters to make their voices heard about this measure.

Interestingly enough, there were voices not associated with the pay day loan industry that wanted Section 3 of HB 545 to be repealed.  The following quotes are taken from the Ballotpedia article on this ballot referendum (found here):

  • C.O.A.S.T. (Coalition Opposed to Additional Spending and Taxes) states, “This weird law takes state government to a new level of creepy interference with our lives.” This is a reference to the measure requiring a borrower who takes two pay day advances in 90 days to be required to take a state-mandated education program that encourages value perspectives of the government. The consumer is charged a $250 for the class.
  • The Ohio Chamber of Commerce wrote in a letter to Members of the Ohio House on April 30, 2008 “The payday advance industry provides a legitimate service that is responsibly used by thousands of Ohioans with short-term financial needs. The industry also provides over 6,000 Ohioans with good-paying jobs and many include health insurance and other benefits.” (Source)
  • Ohio Grocer’s Association also gave their support to a repeal of section three by saying, “If payday lending businesses cease to exist in Ohio, which is likely if H.B. 545 is enacted, OGA’s members could be hurt through an increased number of bounced checks, fraudulent checks and even theft.”
  • And finally, the national Spokerperson for the Congress of Racial Equality, Niger Innis, supported the place of the pay day loan industry in providing immediate cash to people in need – just like he and his organization did in Washington and Georgia in previous bouts between they “legal loan sharks” and state legislators.

I found these supporters of pay day advances surprising to say least.  No practice that preys on the economically disadvantaged should have any part in our financial or economic system, even if it does create jobs and meet the need of an individual in dire financial circumstances.  Instead of charging these people up the whazoo, we should be seeking to educate them and help them overcome the economic disadvantages that have created the situation that makes legal loan sharking necessary.

Fortunately, 66% of Ohio voters agreed that payday cash advances suck and need the very serious limits imposed on the interest rates by HB 545.  Pay day loans, 0, the American people (of Ohio), 1.

Arizona and the Arizona Payday Loan Reform Act

The Arizona Payday Loan Reform Act was a misleading title to Arizona Proposition 200.  Just read the description filed with the Arizona Secretary of State’s office [bold text is my added emphasis]:

Arizonans use payday lending services everyday to meet unforeseen expenses and financial emergencies. The payday lending industry is set to be eliminated and the Arizona Legislature refuses to enact reforms to benefit borrowers while preserving this important financial option. This measure will bring dramatic pro-consumer reform to payday lending and preserve consumer choice. It includes a substantial rate cut, eliminates rolling-over principal to extend a loan, creates a repayment plan at no cost to customers that can’t meet their obligations, and inhibits a borrower’s ability to obtain more than one loan at a time.

As you can see, Prop 200 would keep the payday lenders in business.  As far as I am concerned, that is not real reform. Taking a closer look at what Prop 200 would have done if passed by the voters we find that:

  • The cash advance industry, which would be eliminated in 2010 after the current enabling laws expire, would have been able to give loans indefinitely
  • The maximum fee that can be charged with these loans would have fallen from $17.65 to $15 on a $100, two-week loan – an APY of 391%
  • Lenders would not have been allowed to roll over the principal into extended loans and would have had to offer consumers repayment plans

This would not have been any reform at all.

Luckily, the voters in Arizona realized what was going on with the Arizona Payday Loan Reform Act and defeated it on November 4th. Pay day loans, 0, the American people (of Ohio and of Arizona), 2.

Whether or not you liked the outcome of the presidential elections or the countless other local races and issues that were presented to the American people just a few short weeks ago, you have to admit that this blow to the usurious and hazardous payday loan industry is an excellent thing for America.