Battle’s on over payday lending laws

COLUMBUS (AP) — A budding fight intensified Thursday as Gov. Ted Strickland, a Democrat, joined Republican leaders in a campaign to protect one of the nation’s most restrictive payday lending laws.

The law, which takes effect Sept. 1, limits borrowers to four short-term loans a year and caps annual interest rates at 28 percent. Lenders currently are able to charge what works out to an annual interest rate of 391 percent.

Payday lenders hope to submit enough valid signatures by Aug. 31 to get a request to repeal the law on the November ballot. They say the restrictions will effectively ruin their industry and the 6,000 good-paying jobs it provides in the state.

The industry, under the name Ohioans Fighting for Financial Freedom, is expected to spend as much as $16 million on its repeal campaign.

House Speaker Jon Husted, a Kettering Republican, said at a news conference Thursday that he rejects the industry’s arguments that the law will interfere with the free market, which he believes in protecting.

“We capped the interest rate at a level that created a reasonable expectation that the borrower could pay it back, that they wouldn’t be trapped in a cycle of debt,” Husted said. “We didn’t ban small loans; we banned a defective product.”

Husted, GOP Senate President Bill Harris and Strickland are serving as honorary co-chairmen for the campaign against the repeal, which is being spearheaded by the Coalition on Homelessness and Housing in Ohio. The coalition, an advocacy group for the poor, helped lead efforts to pass the payday lending restrictions.

Strickland said he will use the bully pulpit to fight for the new law, in addition to helping raise funds for the campaign.

“I will speak out as directly and as forcefully as I can and indicate to the people of this state the importance of this issue,” he said.

The governor called usury, the practice of lending money at exorbitant interest rates, “one of the oldest of sins.” He noted that it was outlawed in the Northwest Territory before Ohio became a state and that the state Legislature regulated it for the first time in a bill passed in 1804.

Kim Norris, a spokeswoman for the industry, said now is not the time to put 6,000 people out of work at 1,600 payday lending stores across the state.

“I would ask is this the time to be taking good-paying jobs away from Ohio, when its economy is teetering,” she said.

Norris said consumers are smart enough to decide for themselves whether they need and can afford a short-term loan.

She said the notion that payday loans go only to the poor is false. Ninety percent of payday loan customers pay their $100 loan back in two weeks and are not pulled into the spiral of debt described by opponents, she said.

“I talk to consumers all the time who tell me they need band uniforms for their children, or their car got towed and they need a short-term loan,” she said. “They can’t go to a bank and borrow $100. No bank offers it, and quite honestly they don’t want to incur a late fee of a bounced check or a late fee of a credit card. Those are much higher percentages, actually, when spread over a whole year.”

Strickland, Harris and Husted said there is no evidence that 6,000 jobs will be lost as a result of the new law.

Harris said he has received calls from some employees of payday lending stores who fear the new law’s effect.

“My question to them is, ’Why does the owner feel he’s got to go out of business?”’ Harris said, noting that the law allows lenders to transfer their payday lending license to a small loan license through the Ohio Department of Commerce without an additional fee.

Strickland said as many as 1,000 of the 1,600 payday lenders in the state have applied for such alternative licenses, which he sees as evidence those businesses can remain open charging reasonable interest rates.

Norris said many of the lenders have applied for the licenses as a last resort in anticipation of the new law. She said it is still unclear whether they can survive without the higher interest rates, which she said underwrite industry salaries and other loan costs.