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EDITORIAL
Our view: Pentagon set example in payday battle
Sunday, April 20, 2008
Payday lending typically gets discussed in good-guy/bad-guy terms.
The stores that make short-term loans at interest rates that come to more than 300 percent a year get painted as bad guys.
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But the reformers who would deny consumers the opportunity to borrow on their next paycheck — when the alternative is having their electricity cut off — also get painted as bad guys.
And the politicians who take money from an industry and then protect that industry get painted as bad guys.
But let's strip all that way. Let's assume that there's a legitimate debate to be had here among people of good will.
Payday lending is a business that hardly existed as recently as 1990. But it has mushroomed. Under it, a person signs over part of his or her next paycheck to get fast cash. The cost might be $15 for a two-week loan of $100.
Some people say payday lending results in people being sucked into a cycle of debt, that signing away part of one check often requires them to sign away part of the next check, too, and so on. And the fees become part of their lives, sometimes adding thousands to their debt.
But there is also an argument that this spiral is the exception. More typically, some say, payday loans are used successfully and responsibly to help employed people through a short-term crunch.
Some defenders of payday lending are part of the industry. Others are borrowers who have used the service, or politicians who represent borrowers. Others are people, often conservatives, who just honestly believe that the government would do more harm than good by stepping in. Let the free market reign among law-abiding adults, they say.
Both sides throw around statistics and anecdotes. For the average citizen, cutting through all that is a daunting proposition.
But here's a fact that helps: The United States military found that so many troops were getting caught up in debt to payday lenders as to constitute a national security issue: thousands of insolvent soldiers could not be sent overseas because their financial circumstances might make them targets for blackmailers.
(There were, for example, 200 lenders near Navy bases in Virginia.)
The brass went to Congress and said the situation is out of hand. A Republican Congress responded by enacting a 36 percent-per-year cap on interest rates for people in uniform.
Now legislators need to ask themselves: if the Pentagon has concluded that payday lending is bad for the troops, and Congress has bought the argument, why is it not bad for civilians. There appears to be no good reason.
The Ohio legislature seems to be moving toward regulation of payday lenders, including a possible cap on interest rates, perhaps at 36 percent per year. House Speaker Jon Husted, R-Kettering, has said he wants a bill and sees growing support for a cap. Financial Institutions Committee Chairman Rep. Christopher Widener, R-Springfield, is resisting a cap.
The payday lenders say a cap puts them out of business.
But somebody ought to be able to make some money at the 36 percent rate.
The impetus toward legislation in Ohio has increased in the wake of the amazing revelation that former state Rep. Otto Beatty is registered as a lobbyist for a payday operation in Virginia. He is married to Rep. Joyce Beatty, of Columbus, who is leader of the House Democrats and has written about the dangers of crippling the industry. The arrangement smells. Rep. Beatty has now said she won't try to stop a bill if her caucus wants it.
Democrats should not embrace regulation just because they are embarrassed, of course.
But Ohio does need to get beyond the era of payday lending as it now exists. At the same time, however, the state also needs to recognize that the emergence of that business demonstrates a need in this society. That can be addressed without hosing borrowers.
