by Mark Rembert
It’s almost Halloween, and if you’re looking for a fright I recommend sitting down and watching the ads for Issue 5. Believe me, these ads are scary: vote “YES” and you support taking a meat cleaver to 6,000 Ohio jobs in a slash-and-kill thriller, vote “NO” and you’re throwing your neighbor into the jaws of circling loan sharks charging 391% APR. But for those of you looking to avoid the suspense of making a decision, we offer a fear-free look at Issue 5 as part of our ongoing coverage of the 2008 Election.
What you’re voting for
The core of the issue behind Issue 5 is Ohio House Bill 545. The bill, which was passed in May, lowers the cap on the interest rate payday lenders can charge from 391% APR to 28% APR. Ohioans for Financial Freedom represents the payday loan industry and has been working to block the bill since May, first with a petition blocking enforcement of the bill, and now with Issue 5 which seeks to repeal the bill. Support for H.B. 545 if coming from the Vote Yes on Issue 5 Committee, and if the bill stands Ohio will join 15 others state, the District of Columbia, and the U.S. Government (which banned payday lending to members of the military) in limiting or banning payday lending.
Since this is a repeal vote, “YES” vs. “NO” can be a little confusing, so this is basically what your vote will mean:
- YES to H.B. 545: you approve H.B. 545 which limits interest rates for short term loans to 28% APR and extends the repayment period to 30 days. You also approve of the new transparency requirements for payday loan establishments to provide information to the state government about customers that will help to enforce a limit of four payday loans per person per year.
- NO to H.B. 545: you want the restrictions and changes to payday lending established by H.B. 545 repealed.
The Arguments
The debate surrounding Issue 5 largely focuses on the economic impact of payday lenders. Opponents of H.B. 545 (people voting NO) argue that payday lenders play an important role in providing funds to people in financial need who can not get cash from other sources. They also point out that the payday loan industry—which has more branches in Ohio than Starbucks and McDonalds combined—is a major employer in the state. They therefore claim that limiting interest rates on payday loans will make it difficult for payday loans firms to continue business, which they estimate will lead to a loss of 6000 jobs and result in fewer financial options for people in need of emergency cash and fewer jobs for Ohioans. They also emphasize the fact that the maximum 391% APR is often used to be misleading, an issue that forced the removal of the number from the ballot language. Lenders argue that 391% APR is reasonable on a 15 day loan, which comes out to $15 for a $100 loan.
Supporters of H.B. 545 (people voting YES) argue for greater consumer protection by pointing to the economic costs to low-income Ohioans who fall pray to a predatory loan cycles when they are unable to pay back their payday loans on time and are forced to take out subsequent loans. To specifically address the potentially vicious cycle of payday loans, H.B. 545 also forces payday lenders to provide information about customers to enforce a limit of four payday loans a year per person. Supporters also point to the fact that many payday lenders have already applied for a new state license to operate under the new system established by H.B. 545, suggesting that many plan on staying in business even if H.B. 545 isn’t repealed.
The Research
For those you interested in the nitty-gritty research on payday lending, there are a couple of great sources.
I highly recommend this Brookings Institute study. Not only does it provide comprehensive analysis of the payday loan industry, it takes a nuanced approach to analyzing policy options that maximize the well-being of consumers. In the end it suggests that payday lending should be limited by policy like H.B. 545, but only in concert with policies and subsidies encouraging formal financial institutions to increase their accessibility to low-income customers, including offering products similar to payday loans which will meet the demand of people in need of emergency cash.
For information on payday lending in Ohio, check out this study published by Policy Matters Ohio (used as support by Yes on Issue 5), which provides a lot of useful information about the payday loan industry in Ohio. And for an out-of-state perspective, check out this study conducted by the University of Texas.
For more information about the issues and races, continue tuning in to WYSO’s daily coverage of the election, including our live Election Call-In Show this Thurs. at 1:00pm featuring Sharon Harmer from the League of Women Voters and Dr. Rob Baker, political science professor at Wittenberg University. From state and local issues to your questions about the polling places and voter concerns, we want to hear from you!
4 Comments
October 29, 2008 at 2:38 pm
The payday lending industry has spent between $15 million and $20 million on their deceptive campaign to overturn Ohio’s anti-predatory lending legislation and the interest rate cap on payday loans. With over 300,000 Ohioans trapped in debt each year and over $300 million in fees being stripped from the pockets of hardworking families in our state, it’s time we VOTE YES to save HB 545! If you want lower interest rates, to prevent the never ending cycle of debt for consumers and end predatory lending, vote yes on issue 5!
http://www.yesonissue5.com
October 30, 2008 at 1:22 pm
[...] About the WYSO News Blog Election 2008 Halloween Edition: the scary questions behind Issue 5 [...]
October 31, 2008 at 2:11 am
This is more than a vote on whether to allow payday lending in Ohio. This is a chance for Ohioans to vote “yes” on 5 and receive more direction from a nanny state government or “no” on 5 and support personal choice and freedom.
There is too much of government intrusions already in the system. Supporting this measure simply binds Ohioans with another flaxen cord. Enough is enough. Vote “NO” on 5.
December 8, 2008 at 5:40 pm
Did you know that people have paid just as much in late fees as they did going to payday loans? Personally it was cheaper for me to pay up the $15 and borrow money than have to sit there and pay the bank for a bounced check!