HB545′s Hollow Victory
Somewhere along the path of Ohio legislative sausage-making, House Bill 333 was transformed into House Bill 545. HB545 (ne. HB333) was the legislation I wrote extensively about that limited the interest rates that could be charged by Payday Lenders in the State of Ohio. The bill was signed into Law on June 2, 2008 by Governor Strickland.
When the law takes effect in 90 days, it will put an end to the payday lending industry as it exists in Ohio, likely pushing many of Ohio’s 1,600 payday stores out of business. No longer will lenders be able to offer two-week loans with a 391 percent annualized interest rate ($15 per $100 on a two-week loan).
My pastor regarded the Bill’s passage as a great victory in providing social justice for the poor. I cannot concur with that simplistic opinion. I have written my opposition to the Bill (whatever its number) in this blog on numerous occasions. My objections were scriptural, moral, and practical. If events work out as indicated in the Columbus Dispatch, then my predictions will prove to be frighteningly accurate.
In the process of protecting the poor from the “pirate ships” of the Payday Lenders, the governor in association with the State’s pastors, have thrown them overboard into shark infested waters. Probably Loan shark-infested waters.
The Payday Lenders are, as I predicted, closing up shop. Few made much profit even at the 391% rates. None could stay open at the newly mandated limits of 28%.
National Check Cashers and Always Payday companies said they expect to close their stores in August. Check into Cash, Cash America International and Advance America also have said they expect to close, each arguing it cannot continue to operate under the 28 percent interest rate imposed by the new law.
Asked to comment, Lisa Ferguson, director of communications for Dublin-based Checksmart, declined because yesterday was her last day of work. She said she and her staff had been let go as a result of the bill.
Checksmart’s top executives, company founder and CEO James Frauenberg and his son, Jamie Frauenberg, who also served as president of the Ohio Association of Financial Service Centers, were let go shortly after the Senate passed the bill last month, she said.
In short, the Payday Lenders are not lowering their rates. Instead, they are shutting down and leaving. It is unlikely that regular banks are going to take their place. Most now are not even lending on collateralized home equity loans or student loans due to the latest financial crisis. What are the odds that these same banks are going to do any lending to the poor? I would say a lot less than 28% to one.
In other words, not only is this bad legislation; it is bad legislation that has passed at the worst possible time. It will, and has already, driven out legitimate sources of cash in the poorer neighborhoods.
So that leaves the poor either without credit or funds at any price; or at the mercy of the more violent loan sharks using sources of cash from such nefarious activities as drugs and prostitution. Indeed, the flow of funds will probably move in the direction of those activities. In short, most of the poor will not get any less poor due to this legislation. Some may be brutalized or even murdered as a result. The neighborhoods will grow worse and not better.
Not that my pastor or any of the other pastors desired this result, but such is the “Law of Unintended Consequences.” The Law of Unintended Consequences states that any purposeful action will produce some unintended consequences.
This maxim is not a scientific law; it is more in line with Murphy’s Law as a warning against the belief that we can control the world around us. In other words, each cause has more than one effect, which will invariably include at least one side effect. The side effect can potentially be more significant than any of the intended effects.
Two of the major contributing factors to the Law of Unintended Consequences are ignorance (in terms of incomplete analysis) and basic values (in which certain actions appear required even if the consequences will be unfavorable). Both of these issues came into play in terms of at least the pastors’ involvement in HB545/333. They basically were so concerned about the appearance of Payday lenders’ practices oppressing the poor and the emotional charge that accompanies 391% interest rates that they did not go any further. They went for the quick fix.
Such is the practice of, as Paul says, “zeal without knowledge” (Rom 10:2). It often accomplishes more harm than good. At the same time, by going to Caesar on this issue instead of working itself as the government of God, the church will ultimately besmirch the name of Christ in the very eyes of those it sought to help.
As Robin Williams once said in Mork and Mindy; “the road to Earth is paved with good intentions.” So too is the pathway down to the Slough of Despond. It is something we will have to answer for at the Judgment Seat of Christ and probably a lot sooner than that.
June 11th, 2008 at 10:42 am
The charges on Payday loans can add up, if someone doesn’t pay on time. Other than that, it’s a good option for someone that doesn’t want to get caught up with credit cards debts. They can also help in a tight situation, its quick, and most places are open longer hours than banks.
June 11th, 2008 at 3:33 pm
Thank you for this article. Thank you for staying aware and not just blindly accepting everything that you hear in church. Unfortunately, many Christians are blindly embracing this rhetoric without considering the unintended consequences that will result from this legislation. My biggest concern is that by allowing our government to determine what is “in our best interest,” we are establishing a precedent that we will regret later on. This type of legislation seems to me to be a shortcut to socialism, and one of the reasons why we have so many freedoms in our country is because of its capitalist foundation. However “evil” capitalism may be to some people, it is one of the main reasons why we have the freedoms that we enjoy.
I would like to invite you to stay in touch. I’ve recently started a website that I intend to be a unifying front against this type of rhetoric. It’s PaydayFacts.org. I would really appreciate it if you would allow me to post a link to this article.
Once again, thank you!
June 11th, 2008 at 3:55 pm
All of my posts can be quoted in full or in part, as long as a link exists to the actual post. In other words, feel free to post a link or quote this article. I am flattered.
I too think the eagerness of the churches to support the State in such restrictions will turn around on them someday. Witness the Human Right Commission efforts in Canada used now to suppress free speech and specifically Christian free speech. Same tactic or political philosophy in action.
June 14th, 2008 at 4:34 pm
Thanks – especially for your analysis of the scriptural aspects of usury.
One word that I spot in the discussion catches my attention: “poor”. What exactly is it? The neighborhood around the store where I work has a median household income of over $60,000 per year. Our customers are primarily from the neighborhood and have incomes around this mark.
To get a loan you have to meet requirements for income, residence and have a checking account in reasonably good shape. Based on these underwriting factors the customer will qualify for a $50 to $500 loan – or be declined altogether.
My prediction is that H.B. 545 probably won’t greatly affect the very poor. They will still be poor. But it will push median income families into paying more fees at the credit union, or force them to miss work when they can’t repair a car, or keep their kid out of scouts because they can’t pay for a uniform this month… In other words it will be detrimental to the middle class.
October 6th, 2008 at 4:00 pm
what did the poor people do before there was a preditory lending service?
October 13th, 2008 at 7:46 pm
First, I do not concede it is “predatory” lending. Second, I do not know exactly what the poor did to obtain emergency funds. I suspect real loan sharks that broke bones for lack of payback were the source. However, what can be certain is that whatever the source was it was no better than the payday lenders. If it was, the poor would have stayed with those sources rather than become users of the “predatory” rates.
Also, per my sources a great many customers of these institutions are not the poor as we would define them. Many are from the middle class.
Also, please see the whole series I have done on this topic. I do not consider the high interest rates “good;” just better than the available alternatives (none).
December 11th, 2008 at 3:07 pm
The advantage oflawsuit financing is that it carries no risk to the plaintiff – if the lawsuit settles for less than the amount of the cash advance, or if the defendant ultimately prevails and there is no recovery at all, the plaintiff has no obligation to the lawsuit funding company beyond the plaintiff’s own share of any recovery. Wanna know more click on http://www.mylegaladvance.com/how-lawsuit-cash-advance-works.htm
August 29th, 2010 at 8:55 am
It’s nearly two years later and not one of the cash advance or payday loan stores in my neighborhood has gone out of business. They are still making their FAIR share of profit. The key word here being FAIR. While reading your posts it has become clear to me that no one posting on this issue had ever been in the kind of predicament an actually POOR family would find themselves in when running out of cash a few days prior to payday and facing a sudden financial delema. POOR people are NOT stupid people. They are only very vullnerable and in great need at some points. And you speak of “loan sharks” often. What do any of you know of such things? Why do all of these posters only side with the businesses? These businesses targeted the very vulnerable single moms with little mouths to feed. Using a poor person’s broken down vehicle and fear of loosing the job they need so desperately as a way to make a 500% profit was just evil! WWJD ! He’d turn over their “carts” as He did the money changers!
August 31st, 2010 at 7:39 pm
Rob, you have definitely done a good survey there. No payday lender in your neighborhood has gone out of business, so none must have. What is your neighborhood? How many blocks did it cover? Is it in a middle class area or more poor?
In truth, some 700 payday lenders have gone out of business in Ohio. The income generated on the short term loans, capped at 28% annualized interest (annualized, not 28% for two weeks) was not enough to cover their costs.
However, “all things being equal,” the more massive exodus of the payday lenders did not happen as I predicted (though 700 is a pretty good shot). Why? Because not all things were equal.
First, the credit crunch hit (in case no one noticed). Even with the “bailout” money, banks pretty much tightfisted credit and loans to almost everyone, on most secured debt; forget about unsecured debt which was the foundation of the Payday lenders.
So the customer base of a lot of the Payday lenders may have increased, as a lot of people in their current situation were at lower level jobs than they were used to and with no easy line of credit outside of the lenders. In short, volume may have made up for some of the loss in revenues for some lenders. I am guessing these were in the more middle class neighborhoods.
Second, and outside of my assumptions, a lot of Payday lenders switched licenses. They grabbed onto a “loophole” in the law and registered as lenders under the Small Loans Act. Here they could charge Lending Fees such as origination fees, documentation fees, etc. that got around the 28% limit. They then could recoup their costs and still remain within the laws.
That loophole was closed with HB486. I believe that bill remains open and not yet passed. Until it does, I assume the Payday lenders will remain open as well.
If they close, well then I guess we will both see what happens.
As far as your keyword, “fair.” My point is that “fair” is difficult to define. As I noted, the Bible says that a fair rate of interest is 0% to a Hebrew relative (brother) and pretty much what the market will bear to anyone else. If fair causes a business to close, then is it really fair?
And in your example, the poor person (who I never said was stupid, as you imply) who runs out of money just prior to payday. Just what IS he to do? In your example, there is no longer a Payday lender. Who does he go to? Family, friends? If those were sources of funds, he would have gone to them before he went to the payday lender ANYWAY. The bank? I think not. The church. Sometimes. That was my solution in the first place. If the church is so against payday lenders, then they should open business to compete with them.
But I don’t see long lines of churches doing that.
so what is he to do? You tell me.
WWJD? Again. You tell me. The money changers tables are overturned and they are all gone. This is not the temple. this is the street. Where does the poor person who just needs a short term loan go?
P.S. On a personal note, I hope they all do go out of business, like they did in Arizona and Virginia. Not for ethical or even business reason. I just don’t like the way they spam my website!