Thursday, September 27, 2007

Ohioans with lower credit scores who turn to cash-advance storefronts to cover unexpected expenses understand the costs involved and don’t want lawmakers to limit their availability, according to a study released Wednesday.

The survey of 400 Ohio payday loan customers, backed by an association of payday advance loan lenders, also calls into question statistics circulated by a group supporting planned legislation to cap interest rates charged for such temporary loans and promote less-expensive alternatives.

“I am most angered when I hear (Ohioans who utilize payday loans) criticized for not understanding what they’re doing,” said Patricia Cirillo, a senior research associate at the Cleveland-area Cypress Research Group, who conducted the survey. “They absolutely do understand what they are doing and, in fact, given the choices available to them, a payday loan is often the most economical choice.”

The release Wednesday came a week after the Ohio Coalition for Responsible Lending unveiled its own findings in a report titled “Trapped by Design: Payday Lending by the Numbers.”

Using information culled from the financial reports of four of the state’s top payday lenders, the coalition noted that more than 300,000 Ohioans “are trapped in a long-term payday lending cycle,” and pay more than $318 million in payday loan fees each year.

The average online payday loan, according to the coalition, totals $328 and carries an average annual percentage rate of 391 percent. And the average payday borrower takes out close to 13 loans annually.

“The payday lending industry’s survival requires that it lead most of its customers into a wave of successive two-week loans,” according to the coalition’s study. “This is a particularly oppressive form of high-interest lending, and damages all of Ohio’s residents. Ohio’s usury laws were amended in 1995 to specifically enable payday lending to Ohio’s citizens at triple-digit interest rates. A decade later, it is clear that the exemption for payday lenders was a mistake.”

Cirillo, working for the Ohio Association of Financial Service Centers, conducted telephone interviews with 400 payday loan users, with participants selected randomly from customer lists provided by the fast cash loan lenders. She said about one-third of Ohio adults (some 2.8 million people) live paycheck to paycheck, have credit scores lower than 660 and have a more difficult time and/or end up paying more to borrow money.

“One of the things I think we can all agree on is that this group of Ohioans, just like everyone else, needs access to credit,” she said. “… Economists are very clear that denying access to credit to a group of people spells economic disaster for that group of people. … If you have a month where expenses exceed income and you don’t have any savings, you need access to credit.”

Of the individuals interviewed in Ohio, 96 percent said they viewed payday advance loans as a useful service and pay them off on time. About 64 percent said they choose such loans for their convenience and quick approval process.

“When you talk to customers, they really value the service and are quite thankful (that the service) was there for them,” Cirillo said.

Additionally, a majority of payday loan customers seek the loans to cover unexpected expenses, avoid late charges on bills or to avoid bounced checks, Cirillo said. Ninety-two percent of respondents said they did not want the government to place limits on the number of loans allowed each year, while 90 percent said they did not want the government to have access to payday advance records to monitor their use.

Cirillo said customers she interviewed don’t look at the fees involved from an annual percentage rate perspective, and they grasp the costs involved.

“The consumers of this product know what they’re doing,” she said. “They’re not duped. They’re not dragged in from the sidewalk. They’ve thought a lot about this and they make that decision when the time comes.”

Cirillo acknowledged the average customer takes out six to nine loans per year; if that repeat business stopped, it would cause a big drop in lenders’ profits. She said she could envision circumstances in which individuals should not get payday loans - “if those other options are less expensive and they won’t damage your credit, then you should not get a payday loan,” she said.

And she welcomed any attempts to offer other short-term, small and affordable consumer loans.

“Unless the government or philanthropic community wishes to subsidize these loans, they will remain expensive for consumers,” she said. “I don’t believe taxpayers will want to subsidize these loans, nor do I believe the government can force the for-profit community to offer them at a loss.”

She added, “If [no fax payday loans] are prohibited, will the alternative choices consumers make be preferable to payday loans? The demand will not go away.”

This entry was posted on Thursday, September 27th, 2007 at 4:33 pm and is filed under Ohio.