Payday lenders look to voters for assistance

If an Ohio law goes into effect, it will force many lenders to shut down, officials said.

Stateline.org

WASHINGTON — The fight between state lawmakers and payday lenders has entered a new phase as the industry is attempting to get on the ballot this fall in Ohio and Arizona, and take its case directly to voters.

Until now, the industry has largely confined its efforts to battling state legislatures, many of which have moved to protect borrowers who take out the short-term, high-interest loans. Ohio, New Hampshire and Virginia lawmakers approved payday reforms this year.

Now industry officials are trying a new tack. In Ohio, they are seeking a referendum on the Nov. 4 ballot that would in effect reverse the Legislature’s action. In Arizona, an industry-led coalition is collecting signatures to qualify for a ballot initiative wiping out a state law that will shut down the industry in two years.

The strategy could be risky. If voters reject the ballot measures, opponents of payday lending say they would use the defeats to puncture the industry’s argument that such loans are popular with consumers who need small amounts of cash for emergencies. The borrower usually receives the cash after writing a personal check for the loan amount and a fee. The lender holds the check until the worker’s next payday, usually two to four weeks, when the borrower must pay off the debt.

But Steven Schlein, an industry spokesman, said polls show consumers don’t like it when legislators take away choices. “Once the message gets out that a financial option was taken away, Ohioans will not like it,” he said of the ballot proposal.

Ohio was the big prize for the national coalition of consumer, religious and senior citizen groups that has been fighting the industry. Those groups contend that payday loans snare borrowers in a cycle of debt because they keep taking out loans they can’t repay. The average loan is about $300; lenders usually charge $15 for each $100 borrowed until the next paycheck, or nearly 400 percent annual interest.

The Ohio Legislature approved and Gov. Ted Strickland, a Democrat, signed a bill that caps the annual interest rate on payday loans at 28 percent. Earlier in the year, New Hampshire set the rate at 36 percent, so the consumer coalition viewed Ohio’s action as a watershed. According to the Center for Responsible Lending, 15 states and the District of Columbia effectively ban payday lending by setting double-digit interest rate caps: Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont and West Virginia.

Industry officials say if the Ohio law goes into effect Sept. 1, it will force many lenders to shut down. “There’s no way anyone can make a profitable loan” with those terms, said Schlein, who works for the Community Financial Services Association.

Cash America International, a Texas company, already has announced it will close up to 139 payday lending stores in Ohio. On a smaller scale, Melissa Lutz, who owns two payday loan outlets outside of Columbus, said she probably will close by Aug. 31. She nets a profit of about $3,000 a month on each store, she said, and the new rate cap will substantially reduce that figure. “Ohio has definitely set a precedent,” she said.

The industry’s fear is real. Since Oregon’s 36 percent rate cap went into effect last year, the number of payday business licenses dropped 73 percent, according to the state Department of Consumer and Business Services.