Reported by: Tom McKee
Photographed by: 9News
Web produced by: Neil Relyea
Widely differing viewpoints are emerging about the impact of a bill approved by the Ohio legislature to toughen the law on payday lending stores.
The legislation caps the annual interest rate on these short-term loans at 28%, well under the current figures which can reach 391% APR.
One school of thought is that consumers will be better protected.
"This is an industry that preys on the working people," said Nick DiNardo, of the Legal Aid Society.
Another is that many outlets will be forced to close and thousands of people will lose their jobs.
"The law that is being passed, a company is not able to operate under it," said John Rabenold, vice-president for government affairs at Mason-based Check 'N Go.
Ohio Governor Ted Strickland says he expects to sign the bill once it reaches his desk.
"The industry I think has not conducted itself in an appropriate manner," the governor said while in Cincinnati Thursday.
Payday loan companies began popping up in Ohio in the mid-1990s and were located in working class neighborhoods.
There are now over 1,600 of them in Ohio in a wide-range of neighborhoods.
"It's the people the banks don't serve," Rabenold said. "It's everyday working people who just need $200, $300 or $400 to address some cash flow situation."
The current Ohio law allows payday lenders to charge a fee of $15 for every $100 borrowed for a term of 14-days.
The APR calculation on that is 391%, a fact which is posted in the stores.
Rabenold said, "Consumers know exactly what the terms and costs and conditions are and they are choosing to use a payday advance company because their alternatives are more expensive – mainly check fees, late payment penalties to creditors and other related costs like damaged credit."
"This is not a short-term solution," DiNardo said. "The real issue is the loan has to be paid back all at once."
"What happens is people who take out payday loans get trapped in a spiral where they just don't take out one loan to solve one problem," DiNardo went on to say. "They take out one loan, then take out a series of loans after that to continue paying back the first loan."
"I do not believe payday advance companies are taking advantage of customers," Rabenold countered. "It's a highly satisfied customer base who is using a payday advance to fix cars, pay bills or pay rising fuel costs. They no longer will have a place to go."
DiNardo said many credit unions are offering similar products now, but with longer terms so people can afford to make payments out of their monthly income.
When the law does go into effect, Rabenold says there are likely to be serious consolidations in the industry, which employs 6,000 people.
"It appears there might be upwards of 6,000 people whose families rely on these jobs and the benefits they get who are in danger of losing their jobs," said Rabenold, who also suggested that some firms might consider moving their business to other states considered to be what he terms "more business friendly."
While DiNardo said it would be too bad if people lose jobs, he believes consumers will be the real winners.
"Think of how many jobs this will save because payday lenders are not hassling Ohioans and forcing them to pay these ridiculous interest rates," he said.
Rabenold said he disagreed adding, "Taking away a choice is rarely, if ever, a good choice for consumers."
However, Governor Strickland says he's convinced the bill is good for Ohio and Ohioans.
