News Summary

The only marvelous thing about the payday lending debate is all of us can understand it. You can't say that about electricity deregulation, for instance.

The important question is: Should Ohio have caps and other restrictions on lenders who want to charge as much as $15 for every $100 a person borrows for a lousy two weeks?

The Ohio Senate had two days of hearings this week on the matter, one of which lasted for nine hours. People are overworking themselves.

Payday lenders, who have more than 1,600 storefronts in Ohio, make loans to people who are in a pinch. They charge them an exorbitant interest rate if you annualize the cost over a year.

Lenders argue it's not fair to calculate the borrowing costs over that period because their customers only need the money for a short time. For that convenience, and because borrowers don't have to put up collateral and they get their money quickly, payday operators say they're entitled to charge a premium.

The problem, though, is that many borrowers are taking out loan after loan, and, in a short time, they can run up more in charges than they've received in actual loans. Already living on the financial edge, they become so indebted that they can't get out from under crushing fees.

What happens if they stop paying? One Michigan payday lender was quoted as saying that lenders rarely sue because they've already made plenty of money from the loan churn.

This is a sick business model that serves people only if you believe consumers are better off trapped in debt.

The Ohio House of Representatives, with leadership from two area lawmakers — Jon Husted of Kettering and Chris Widener of Springfield — has passed legislation that would protect consumers from this racket. The interest rate for payday loans would be capped at 28 percent; borrowers could only have four loans per year; and they'd have 30 days rather than two weeks to pay the money back without being in default.

Payday lobbyists contend these changes would put them out of business. They say they'll accept the rate cap if they can also charge an origination fee. Critics say that would mean borrowers would pay an annualized interest rate of 367 percent — not the current 391 percent.

It's this thinking that has some senators checking to see if they still have their wallets after they meet with the lending industry's lobbyists.

Sen. Jeff Jacobson of Butler Twp. is taking the point on advocating for the House's reform bill. He has to persuade the undecideds that consumers are being ripped off and that if the Republican-controlled Senate kills the bill or waters it down, Republicans will be bucking the political tide.

Bucking the tide is respectable when you're on the right side of an issue. But, in fact, payday lenders can't be defended. They're giving the free market a bad name, and they've invited regulation because they're abusing people who are desperate. The only reason they're hardly regulated now is that they're typically dealing with financially unsophisticated people. If they were peddling loans like this to people of means, government would have shut them down faster than you could scream "loan shark."

This issue is going to be resolved next week. Sens. Jacobson, Tom Roberts, of Dayton, and Steve Austria, of Beavercreek, need to tell the payday crowd that they know all they need to know — and that they're voting yes for House Bill 545.

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