BuckeyeBlog

Perhaps looking to focus attention away from his impending impeachment, Attorney General Marc Dann hopped on the anti-payday lending bandwagon yesterday with this report. In it, he decries the “well-documented abuses” of payday lenders (did his press secretary really write that phrase without thinking someone would notice the irony?).

The document Dann put out is merely a collection of anecdotes from dissatisfied payday loan customers and representatives from interest groups opposed to the industry. Dann claims that these stories prove that payday lenders seek to trap people in debt, that borrowers don’t like these loans, and prove a variety of other “abuses.” Unfortunately, he doesn’t seem to realize that the plural of “anecdote” is not “data.” A collection of stories proves absolutely nothing about the payday lending industry as a whole or its customers.

In an attempt to actually introduce facts to this debate, the Buckeye Institute has twice brought an economist to address the legislature on this issue. You can find his testimony — based on data, not anecdotes — here.

So the Ohio House passed legislation effectively banning payday lending. Why? As Republican Rep. Chris Widener said, “As legislators, sometimes we got to step up and we’ve got to do something.” Ah, yes, the desire to “do something.” Let’s forget the fact that sometimes doing something is worse than doing nothing. Politicians often feel the desire to do something, regardless of its merits, just so they can appear compassionate.

The Dispatch says, “Support increased for an interest-rate cap as more lawmakers, including Speaker Jon Husted and Financial Institutions Committee Chairman Christopher R. Widener, became convinced that the two-week loan model trapped borrowers in a debt spiral.” Too bad there is no evidence to suppor this contention. As I’ve stated here before, it is certainly true that many people who take payday loans have financial problems. However, these financial problems are not caused by the loans. Instead, borrowers’ financial problems cause them to take the loans. Eliminating the loans will not eliminate these financial problems. But, hey, legislators need to look like they are “doing something,” right?

In their quest to continue one-upping Democrats in taking away your freedom, Republicans in the General Assembly introduced legislation yesterday to effectively ban payday lending in Ohio. Based on the notion that some people are too stupid to make their own financial choices, this legislation should illustrate how far the supposed party of the free market has embraced the fatal conceit that the government should dictate your financial choices.

House Speaker Jon Husted makes this clear with his assertion that “While a lot of people would prefer that we minimize some of the regulations regarding borrowing, clearly as a nation and as consumers we cannot handle it very well.” Yes, some people cannot manage their own economic lives well. However, some others cannot manage the state budget very well. Has Mr. Husted forgotten about the financial difficulties facing the state? Perhaps when legislators solve those problems — and also find a way to stimulate growth in Ohio’s economy — they can lecture the rest of us on how we “cannot handle borrowing very well.”

The Cleveland Plain Dealer had an editorial today that advocated in favor of legislation by Representatives Batchelder and Hagan which would effectively ban payday lending. Unfortunately it does not appear that the editorial went through any fact-check process. While it is not a news story, I would hope that editorial writers would at least try to maintain some semblance of accuracy.

For instance, the editorial claims that “A 36 percent APR would amply compensate payday lenders for repayment risks.” That is simply untrue. A 36% annual percentage rate (APR) means that on a two-week loan (which is the term of a payday loan) a lender could only charge $1.50 per $100 borrowed. Considering the high default rate and high rate of overhead payday lenders incur, this would not even cover their costs. Make no mistake, a 36% APR is designed to drive payday lenders out of business. Opponents of payday lending should stop pretending otherwise.
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A bipartisan group of state Senators has introduced legislation to ban payday lending.

I’ve discussed the concept of banning payday lending and the faulty thinking behind such a ban here, here, and here. The paternalistic notion that some people are too stupid to make their own financial choices and flawed economic reasoning is animating the anti-lending forces.

It’s unfortunate that these tendencies seem to be so widespread among Ohio’s legislators.