Recently appearing on the airwaves are commercials funded by a group called Ohioans for Financial Freedom. In the television ad, a friendly farmer, supposedly representative of the “average” Joe, tells viewers that, after doing his research, he has discovered that 6,000 Ohio jobs and the state’s financial freedom are at stake. Farmer Joe explains that, if a belt breaks on his red Chevy truck, he can borrow $100 from his friendly neighborhood payday lender and pay back $115 when he gets his Friday paycheck. Joe then goes on to extol the virtues of payday lenders by linking the average citizen’s option of borrowing money from a payday lender with financial freedom and tries to impress upon his audience that 6,000 “well-paying” jobs might be lost if Ohio legislators, who are taking steps to regulate the industry, have their way. In other words, according to Joe, the State of Ohio wants to strip its citizen’s of their financial freedom by reigning in payday lenders. Joe wants us to stop the madness by signing one of the petitions that have been circulating to get legislation sponsored by Ohioans for Financial Freedom on the November ballot.
What Joe doesn’t tell us is that Tony Soprano and his mobster buddies would be hauled off to federal prison for doing what payday lenders make a business out of. What payday lenders do is called usury in my neck of the Ohio woods and, like mob lending, it should be illegal.
The plain facts are this:
- Payday loans are assigned at an annualized interest rate of 391 percent! Ohio lawmakers want that rate lowered to a more manageable 28 percent.
- Payday loan jobs are not “well-paying” positions. They are low-paying jobs that won’t keep a person afloat financially. So, those 6,000 jobs that Joe insists will be lost are people living barely above the poverty line to begin with, not people living in the lap of luxury as Joe would have us believe.
- Payday loans come in all sizes, with a $100 loan being on the low end of the spectrum. Some payday loan lenders allow loans of up to $800.
- Payday lenders prey on those who don’t have the money to repay their debt. The only proof of solvency that payday lenders require is proof of employment and of a bank account. A customer’s credit rating, or true ability to repay, has nothing to do with the transaction. People who have good credit, have other, less expensive, options for accessing money to pay for pickup truck belts. It’s the folks who don’t have those options – the people least able to absorb such high interest rates – that payday lenders service. Desperate people, struggling to find ways to pay bills and meet the rising costs of gasoline and groceries, make up the general clientele of payday lenders. What Joe neglects to tell viewers is that since many payday lenders allow their customers to “borrow” again within a day or two of paying their loan, a number of customers are doing just that. Far too many customers of payday lenders get caught in a cycle of borrowing the same amount, or a larger amount, every payday cycle just to break even.
It is because far too many people found themselves unable to pay back their loans that the State of Ohio had to step in and regulate the payday loan industry which has been enjoying explosive growth at the detriment of those they profess to serve. Had their rates been reasonable and their practices not targeted those least able to repay, Ohio legislators wouldn’t have had to become involved. The only thing missing from payday lenders’ repertoire is a big guy named Vinnie threatening to break the fingers or kneecaps of non-paying customers. Of course, for people who have no other options, even usury is a feasible, if not altogether welcome, alternative. But, gee, Farmer Joe, why not tell the truth and give Ohioans all the information they need to decide if they’d rather borrow money at 391% or at 28%? I for one believe that my financial freedom, and that of my fellow Ohioans, rests on the failure of the payday loan industry, not the perpetuation of it, and you’ll not see this Ohioan’s signature on Joe’s petitions.
But, I don’t have all the answers either.
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