Payday Loan Times

After successfully tackling predatory Ohio mortgage lending, advocates for the poor are taking aim at payday lenders whose numbers have grown more than tenfold in ten years - from 107 in 1996 to 1,562 in 2006.

But gaining support in the legislature for state regulation will be a challenge. Sen. Ray Miller can’t even find a consensus among fellow Democrats in inner-city Columbus.

Miller has repeatedly proposed legislation to cap fees and limit the number of faxless payday loans per person.

House Democratic Leader Joyce Beatty, who represents some of the same citizens as Miller, said she has talked to people in line waiting to get payday loans.

“People said to me, ‘Rep. Beatty, these folks will at least cash my check.’ One lady told me she couldn’t get her check cashed in any bank in the city,” Beatty said. “I have not had anybody call me and say, ‘I go to a payday lending establishment, and I think you should close them down.’ ”

Some people believe that the demand for short-term, high-interest personal loans shows the need for such businesses, said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. “Part of that need is totally inflated because people get in a cycle they can’t get out of.”

People often get a payday loan just to pay off a previous one, he said. Interest for a two-week loan is $15 per $100, or $12.50 per $100 over $500 - a 391 percent rate when annualized. Industry leaders say that is a misleading number.

Faith is finding strong support from Rep. Bill Batchelder, a staunch conservative Republican from Medina and the legislature’s most seasoned member. Batchelder has held meetings on the no fax cash advance issue and has been encouraged by some Democrats. Gov. Ted Strickland also is showing interest.

“We’re finding friends all along the political spectrum,” Faith said.

He’s also finding reluctance along the same spectrum. Rep. Christopher R. Widener, a Springfield Republican and chairman of the House Financial Institutions Committee, said he doesn’t see the need to cap rates or make other regulatory changes.

The GOP-controlled legislature last took action on payday advance lending in 2004, boosting the maximum loan amount from $500 to $800.

More than political affiliation, observers say legislators’ views come down to which argument they believe: that payday lenders provide an important service to those with nowhere else to turn, or they trap financially troubled consumers in a spiral of debt.

“Without a doubt, it creates interesting alliances,” said Uriah King, a policy associate with the North Carolina-based Center for Responsive Lending. “We’ve seen very conservative Republicans and very liberal Democrats take unexpected positions.”

Using 2005 data from four states, King found that 90 percent of payday loans were made to those who get five or more such cash advances in a year, and 62 percent went to those with at least 12 loans.

“The hard evidence is overwhelming that borrowers are really trapped by the product,” King said.

The national payday industry has lobbied hard in some states, such as a recent push in Virginia. In February, it kicked off a $10 million ad campaign to promote responsible lending, and has partnered with black leaders, offering money to promote financial literacy.

Darryl K. Dever, an industry lobbyist in Ohio, disagrees that the majority of borrowers are using one cheap payday loan to pay off another. The choice to get a payday loan is often a good one, he said, if the alternatives are to bounce a check or have the gas shut off at your home.

“People understand what this product is,” he said. “We don’t advocate this as a long-term solution.”

Batchelder is eyeing legislation in the fall. “I think something should be done. I’m not sure what the right answer is at this point,” he said, though he pointed to interest rates.

Some have suggested a 36 percent cap, mirroring a recently approved federal cap on military payday loans.

Others say the state should limit the number of payday loans a consumer can get in a year, or focus on encouraging banks or credit unions to offer small loans with lower rates and longer terms.

“We can’t legislate money management or common sense, but we can regulate an industry so they’re more consumer friendly,” said Rep. Matt Lundy, a freshman Democrat from Elyria who has been working with Batchelder.

But politics also are at play. Lundy and other Democrats are being warned about the political implications of working with Batchelder, who wants to be speaker of the House in 2009.

“I would caution my members not to get involved in anything that was in an effort to help someone else with their leadership or political causes,” Beatty said.

SOURCE: The Columbus Dispatch