Did the Payday Loan Law Make A Difference?-
Last November, Ohio voters decided to keep the new law that promised to alter the way “Payday Loan” businesses operated in the state. The law put into effect an interest rate cap that was supposed to save consumers money and make things better for their already ailing finances. But has the law really made a difference?
The Ohio Legislature passed House Bill 545 into law earlier in 2008, but an industry petition initiative alleging Ohio jobs would be lost was able to gather sympathy and enough signatures to put the measure up for a statewide vote. Their challenge was defeated in November and the law went into effect.
According to a report aired by WVXU radio, state legislators are contemplating another crackdown on these loan operations. Customers who were paying what was calculated to be an annual 391% interest rate are not seeing the promised fee reductions to the new legal 28% cap.
By Any Other Name-
Many of the state’s short-term loan operations began to change soon after the law was passed. Some closed branches to save overhead expenses, others increased rates on check cashing and other services offered. Some chains dropped Utility and Phone bill payer services. And they changed the name. “Pay Day” loans, short-term loans taken out against future earnings with a post-dated check as collateral, are now called “Consumer Loans.”
Many loan stores have undergone minor identity transformations, as well, changing from what they used to be by altering the signs you see as you pass by. They no longer offer “Payday Loans.” In some locations, the change is simply a painting over of the word “Payday,” replacing it with “Consumer.” Some stores have banners covering up their old identities.
So if they are no longer “Payday Loan” outlets, does the new law apply? Perhaps that’s what an anticipated Ohio Legislative crackdown will determine.
The Fees Have Changed-
Proponents of the law cited an example short-term loan of 300 dollars, which required the borrower to pay approximate fees of 45 dollars per week to renew the loan until they came up with the cash to pay off the 300 dollar principal. The weekly fees made for an annual interest rate of 391%. The Ohio law was to have forced payday lenders to comply with a structure capping the fees at a maximum 28%, a drastic drop which legislators say would have reduced a 45 dollar fee to approximately 18 dollars. The law would also allow only 3 such loans per year, thus reducing the fees significantly.
Despite industry cries that they could not survive such a drastic cut in revenue, the bill passed and became law. The fee structures have changed indeed, but because of a few industry modifications not necessarily covered by the new law, the bottom line costs to the consumer might be the same.
The new “Consumer” loans come with a new credit check fee. The loan is paid to the borrower by money order, which the store will cash for an additional fee. The overall effect of new fee structures may be that there has been no change at all. Ohio State Senator, Republican, Chris Widener, says this was not what they intended.
And What About Big Brother?-
The Ohio law also provided for a state-administered database requiring submission of information on all Payday Loan recipients. The database was to serve as a collector of information only…. at least for the first two loans; but once the borrower applied for a third loan within a year, a monitoring provision was to kick in, disallowing any future loans. Does that provision apply if the loans are no longer “Payday Loans?”
So, once again, Ohio state legislators pledge a crackdown on the “Payday Loan” industry. But as they are now a “Consumer Loan” industry and have shown a keen ability to survive legislative crackdowns, what exactly is the next move?