Bank Fees Have Ohioans "longing for a payday loan"

Ohio banks and their ever rising fees have this Cleveland resident longing for the days when payday loans were available in that state: Bank fees will have you longing for a payday loan

Study: Oregon Households Hurt by Payday Ban

A new study from Prof. Jonathan Zinman of Dartmouth College was released last week that looked at the effect of a payday loan ban on Oregon households. Like the 2007 New York Federal Reserve report, Payday Holiday, this study found that households fair worse in a state that has banned payday lending.

The study claims that, in the absence of payday loans, borrowers are forced to choose "inferior substitutes," and "restricting access (to payday loan credit) caused deterioration in the overall financial condition of the Oregon households."

PaydayPolitics.org launched South of the Border

Online payday loan content is relatively hard to find, compared to some of the other topics that populate the web, so I am always pleased to share new sites that focus on this topic. This morning, the people behind PaydayFacts.org launched PaydayPolitics.org. This is a type of site that is more common in the United States, where the political climate is more adversarial and members of the federal and state legislatures receive far more attention to their personal track record, both politically and otherwise.

The idea of the site is to track political candidates and provide voters with information on their payday loan related track record. This will be very helpful for voters who have a strong opinion about payday loans and would like to support those politicians who support the effective use of the product.

Here is a bit of information about how the site is structured:

"Under each candidate profile, you'll find a picture, political stats, contact information, etc. in addition to quotes/voting history regarding the Payday Loan industry. Below each profile, you can post any additional facts/editorial content you would like. We'll give each candidate a 'PaydayPolitics.org Rating' and you can post your agreement or displeasure with that, as well, if you like."

Ohio payday loan customers cry foul

Payday loan customers in Ohio are trying to come to grips with their State government's decision to effectively ban payday lending in that State. Here are some comments in the Ohio press today:

"'This is a godsend for people trying to get their bills paid, basically make ends meet,' Dan Schardt, 48, said while exiting Cashland, 223 W. Perkins Ave.

The Sandusky electric technician, who uses a payday loan about once a month and said he always pays them back on time, believes people like him are being punished for the actions of those who may not use the loans responsibly."

"'This is the first instance where the government just shuts down a business arbitrarily,' Schardt said. 'They're not considering the people who will be out of work, the property owners who lease to them and the public -- it's a big disappointment.'"

"'It's not fair,' said Lyle Viock, 49, who uses occasional payday loans to pay bills while waiting on the $800 he receives each month in spousal support after the death of his wife. What are people supposed to do?'"

"'This is supposed to be a free country,' Viock said. 'It doesn't feel free when they're telling you what to do with your money'"

Thoughtful insight from the blogosphere

As someone who is relatively new to the world of blogging (this blog hit the 'sphere in April), I have been surprised to see the level of commitment that some bloggers and blog readers put into their posts and their comments on other people's posts. A great example is the comments that followed a high octane blog entry from Matthew Mayer titled You Can Still Save Payday Loans in Ohio. The article itself is interesting, if a bit aggressive, but the comments that follow about the ins and outs of the cash advance business make for an even more informative read. Yours truly even took the opportunity to throw in a cent or two.

While it is well worth the time to read through the full list of comments, here are some highlights:

• Payday loan borrowers sent 30,000 letters to Ohio law makers (I doubt there were 30,000 Canadians who even knew about either the Manitoba or Nova Scotia public utility board hearings regarding payday loans).
• Over 5,000 people participated in rallies relating to the pending Ohio payday loan legislation.
• The "faith based community" in Ohio is unified against payday lenders (not sure of the importance of this point, but it was interesting news nonetheless).
• An interesting link to an article about "The Self-Interested Self-Help of the Center for Responsible Lending" (I hadn't seen this article before and I will certainly give it a read and pass on the Coles notes in a future post).
• Reference to a North Carolina study of payday advance users where “87% said that payday advance companies provide a useful service.”
• Some interesting comments from former payday loan employees, one talking about how they work with borrowers to try to help them manage their payday loan debt and also describing how hard they work to ensure that they do not lend to overextended borrowers.
  
• And finally, an interesting YouTube video of a payday loan company talking about the approach they take to the cash advance business (two posts in a row with video!):

Legislation that leads to loss of payday lenders could harm many

Mike Sussman of The Newark Advocate made the argument yesterday that banks and credit unions are unlikely to offer more attractive credit alternatives to payday loan borrowers and that the loss of payday lenders in Ohio could inflict more harm on consumers who are already facing a myriad of financial pressures.

Sussman also mentions who has had the most input in the legislative process in Ohio. While I think many Canadian provinces are doing their best to incorporate a wide range of feedback into their regulatory work, the one voice that we haven't heard enough from up here is the consumer's.

From Mike Sussman of The Newark Advocate:
"Banks, credit unions and small lending divisions of major financial institutions have had the most input. These are the folks with deep pockets that are used for huge donations to our Ohio legislators. Lately, arguments have surfaced that this group of traditional lenders could meet the needs of the payday borrower. Nothing could be further from the truth."

"Payday lending, while expensive, is the last line of defense for the financially overburdened low credit score consumer. Taking this option away will only increase the amount of hardship in a state already overwhelmed by foreclosure. Consumers, unlike Bear Stearns, will have nowhere to turn for immediate financing."

The Problem with APR

This cartoon comes from Check Into Cash via Payday Pundit and it is a fun look at the trouble with using APR (a measure of annual interest) to describe the cost of a payday loan (click the image for a larger view):

Ban payday loans? Big mistake - Christian Science Monitor

An article in today's Christian Science Monitor provides some commentary on the perils of bans on payday advance loans in some American States and suggests that a paternalistic approach to credit regulations hurts consumers.

From Ban payday loans? Big mistake. | csmonitor.com:

"The injury on top of the insult is that laws against payday lending do serious economic harm to the people likeliest to use such a service, as confirmed by multiple teams of researchers."

"...once the paternalistic rhetoric is switched off, payday lending's usefulness to borrowers in tight spots is fairly easy to understand. The quick cash means that the car gets an urgent repair, a critical check doesn't bounce, or the heating bill gets paid. Used responsibly, payday lending can help a borrower stave off financial calamity."

California acknowledges that 36% APR is not feasible

The California Assembly's banking and Finance Committee yesterday took a stand against a 36% APR rate cap in that State: Bill to limit payday lenders defanged.

In doing so, they acknowledged that a 36% cap equates to a prohibition on payday loans: "'I'm not interested in a prohibition,' said Assemblywoman Lois Wolk (D-Davis). 'At the moment, there is no alternative to the products that meet the same needs that payday lending provides.'"

While lenders need to continually improve their efficiency and bring their costs down in order to remain competitive, a rate of 36% APR is simply not feasible. In their 2004 study, Ernst & Young found that it costs the typical payday lender $20.66 to issue a $100 payday loan in Canada. At 36% APR, the fee on a $100 payday loan for 14 days would be $1.38.