Fight brewing over payday lending interest cap

By BILL RODGERS Tribune Chronicle
There was a 5-foot-tall cutout of Uncle Sam in the lobby of Cash Land on Youngstown-Warren Road Thursday.

A handwritten sign was pasted to the cutout’s chest, telling people to register to vote.

The clerk there couldn’t talk about the sign. She, like nearly every other worker in the more than half-dozen pay day loan businesses between Warren and Niles couldn’t comment on anything. When asked if she was afraid for her job after Gov. Ted Strickland signed a bill capping short-term loans at a 28 percent annual rate cap, she found a company memo and read off the phone number of a spokesman.

Industry leaders have argued that a bill capping rates of short-term loans would kill the industry three months after it goes into effect. Currently, payday lenders can charge rates that go as high as 391 percent.

But spokespersons with the payday loan business, which critics argue traps Ohioans in a cycle of debt, say their companies will cling to survival by putting the question to Ohio voters. The Community Financial Services Association of America (CFSA), which represents the payday lending industry, announced Thursday that petitions were circulating to get the 241,365 signatures required to put a referendum on the November ballot.

The petitions need to be in Sept. 1, according to the press release.

On June 2, Strickland signed the law setting the caps. The bill had support from six Ohio mayors, including Warren’s Michael O’Brien and Youngstown’s Jay Williams. If there’s any common ground between the bill’s supporters and the lenders, it’s that each side claims their interests are for the good of the economy and the little guys.

Jamie Fulmer, a spokesman for Advance America, said 6,000 Ohio jobs are within the payday loan industry, more than 500 in his own company. An e-mail from a CFSA representative said each lending business employs up to four full-time workers with retirement and health benefits. That amounts to $172.6 million lost in payroll and benefits, the lobbying group claims.

“When this bill goes into a law, it would make it impossible for us to offer the product we do. There are some hard decisions to make about the future of our employees and our locations,” Fulmer said.

The new limitations would mean the industry would make about 7 cents per day on a $100 two-week loan, he said.

The bill also limits borrowers to four short-term loans per year.

Fulmer could not say whether short-term loans would still be issued following this week.

CFSA claims the new law would cut $23 million in advertising revenue and $76.8 million in rent revenue to landlords. All told, the group claims a loss of $272.2 million to the economy if the businesses are shuttered.

But what the lenders call making enough money to stay in business, Williams called exploitation. He cited his previous experience as a banker.

“There’s nothing inappropriate in pricing loans to reflect the risk, but a triple digit, 300 percent loan goes beyond that, in my opinion. If you can’t find a way to stay in business with a 28 percent return, you don’t need to be in business,” Williams said.

Tasha Bryant was waiting in the car as another woman she knew was inside a payday lender along Youngstown-Warren Road. Bryant said she used one of the loans when she was in a pinch, but no more. She said she did not like taking the loans when she had no money because she would only owe more money later.

‘‘I had to pay a bill or they would cut something off,’’ she said about her gas bill. ‘‘They help, but it’s just a cycle.’’

At America’s Cash Express in Warren, the news came as a surprise to clerks Victoria Taylor and Iris Melendez. They didn’t worry much for their jobs, because ACE offers other services, they said. But they said the decision of whether to use the loans should be up to the customers.

“The government is telling them what they can do with their money,” Melendez said.

Taylor said she never used a short-term loan, but said she would support the referendum if it came to a vote.

“I’d like to know that it was there,” she said.

Melissa Padisak, director of marketing of the regional Better Business Bureau said there were only a few complaints about local payday lenders, and Fulmer argued that the government didn’t actually fix the need that payday loans filled.

And that’s partly true, according to Victor Russell of the Northern Ohio Consumer Credit Counseling Service. It’s also partly true that consumers get locked inside a debt cycle.

“We’ve had clients from several different cash establishments with no plan. What they end up doing is borrowing money they never had in the first place,” he said.

Russell’s non-profit organization helps people craft a budget. He said the problem with payday lenders arises out of a combination of people needing the money and poor planning. He said the emergency needs for which people would ideally use a payday loan should come from a rainy day fund. He said there should be about three months of living expenses saved up in the event of sudden unemployment, or an emergency such as a broken hot water heater, or a trip to the emergency room.

There are a couple ways to do this. He said people should get involved in a 401k plan if their job offers it. There are other options such as payroll deduction plans, which he said work like a Christmas club. The money gets taken directly from the paycheck and is socked away for safekeeping before the paycheck is cashed.

“You don’t notice that it’s gone,” he said.

Russell said that short-term emergency bank loans that range from about three to six months are an option for an emergency, but they are hinged on someone having a good existing relationship with the bank.

As a side-effect of this bill, Russell said more people who don’t have the option of going to banks would borrow from credit cards.

A press release from CFSA warned that consumers would bounce more checks, file for bankruptcies or even forgo prescription medical coverage without the option of a short-term loan.

brodgers@tribtoday.com

The Associated Press contributed to this report.