Payday loans predatory?

By Michael Edwards
Contributing Writer
Columbus Post

Payday lending, sometimes referred to as a cash advance, is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. You have undoubtedly seen eye-catching storefronts everywhere from inner-city shopping malls to locales in suburbia.
Payday lending is indubitably on the rise in the state of Ohio. In 1996, the first year that statistics on state fast cash loan businesses were kept, there was a scant 107 such personal loan providers in the state. Today, that number has increased more than tenfold to 1,562 at the close of last year.
Democrats in the state legislature say that they are in agreement that something needs to be done about the avalanche of predatory cash advance lenders, but progress in that area has been slow. Gaining support for any one avenue of legislation has been difficult, as party members are divided over what the best course of action might be.
Sen. Ray Miller has tried to rally Columbus leaders to get onboard with a proposed fee cap and limit on the amount of fax-less payday loans allowed to any one consumer at a given time. Dem. House Leader Joyce Beatty, however, has expressed that she wants to take things slowly and notes that her constituents are quite reluctant to see payday loans limited if it means they will close.
For a variety of reasons, these small personal loans serve a purpose among working-class families, who might otherwise lack a way to bridge short-term financial crises.
In the absence of national payday loan legislation, individual states have been left to their own devices in settling the often-controversial question of what legislation – if any – should be enacted to restrict the payday loan industry.
Professional lobbyists, who get paid to be a voice in the ear of influential leaders, have been known to make or break a political campaign and are working to keep it that way. With the current tenuous state of fast cash lending and how it relates to American law and the fact that many states, including Ohio, are waffling over possible legislation to regulate the industry, major cash advance companies recognize that they need the help of hard-hitting lobbyists to ensure that their interests are protected.
Another voice on the scene, Ohio Rep. Bill Batchelder, a devoutly religious legislator from Medina, offers a different perspective. He is pushing for an out-and-out ban of high interest cash advance loans in the state. Batchelder has courted much support from Republicans and Democrats alike, and the overwhelming majority of payday loan foes think his plan would be most effective at assuring consumer protections.
“ As a member of the Banking and Insurance Standing Committee for 31 years within the Ohio Legislature, who took a close look at what these loans cost people, I was dismayed. It borders on criminal,” said Batchelder.
Batchelder said he doesn’t buy the lobbyist argument that there is a market for the money at such an extreme cost. “The same (argument) could be made about underground loan sharks. It’s just not fair to charge people up to 90-percent interest on a loan because they feel there are no other options.”
“ Payday loans can be useful if you have a dead car battery, an urgent need for a prescription, a flight out of town for a relative’s funeral, or an overdue utility bill on your hands,” said a local employee of Columbus Check Cashers who did not want to be named for this story. “Used in this way, the short-term personal loan is able to bridge paychecks and enable you to meet your obligations without the hassle of bank overdraft fees, if you don’t have or choose not to access to credit. The ten or fifteen dollars per hundred borrowed that you pay back as interest on your payday loan is more or less excusable, because you are paying for the convenience factor,” he added.
However, in an informal survey of those in line for a payday advance at various outlets around the city, many have greater needs. Some reluctantly admit they have more than one loan and are caught in an endless cycle of borrowing to settle an older debt. Embarrassment registering on her face, a Columbus Check Cashers patron said all she can do is hang on until income tax time.
Batchelder gives this example: Let’s say now, that you are simply not making enough money every month. The grand total of your rent or mortgage, car payments/insurance, utilities, gas, and groceries is more than you bring home, or you are just living beyond your means. If one doesn’t have $300 to meet an emergency expense, how are they going to have the $300 plus the $90 interest fee two weeks later?
Up to three-quarters of payday loan customers cannot pay their obligations back in two weeks according to the report “Financial Quicksand” released by the Center for Responsible Lending. The report states, “While it is true that payday loans are higher risk than personal loans (due to the sub-prime credit-worthiness of many payday loan customers), the corresponding higher costs of doing business do not excuse the three- or four-digit interest rate percentages.” The report also says that the payday lending business model is designed to keep borrowers in debt and not provide one-time assistance during a time of financial need.
“ I believe there needs to be some protection for these people. I believe they understand the cost, but with their financial backs against the wall, they don’t see the long-term impact of these ‘easy loans’ until it’s too late,” said Batchelder. He adds that the very premise of payday lending fees undermine the capitalist system the country was founded on because users have no funds to spend elsewhere.
Terry Anderson of the South Linden Area puts it more succinctly. He stated, “I believe it was the stress of endless payday lending cycles that led to my brother’s heart going out... he simply didn’t wake up one morning.” Anderson said that as he and his family were going through his brother’s affairs they found numerous Truth-in-Lending forms from just about every payday lender in the area covering a 10-month period. Many appear to simply pay off a similar amount with another pay lender.
The FDIC has urged banks and credit unions to come up with payday loan alternative personal loans, many of which can be stretched over six months, a longer payback period.

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