BuckeyeBlog

The Cleveland Plain Dealer is at it again, publishing a story on payday lending that seem to have been written by the Center for Responsible Lending or some other anti-lending group. This story is an ostensible fact-check on the TV ad from Ohioans for Financial Freedom (OFF). In the ad, OFF talks about all the jobs that would be lost when payday lenders shut down.

It’s interesting to note that while the author of this piece, V. David Sartin, castigates OFF for misrepresenting the facts, he trots out this complete untruth to smear the industry: “Old Ohio law allowed interest rates as high as 391 percent for a two-week loan.” Using his own rating system, Sartin would get a 0 on a scale from 0 (misleading) to 10 (truthful) . Old Ohio law allowed a 15% interest rate on a two-week loan. People were not paying $391 to borrow $100. They were paying $15 to do so. How can Sartin be the one evaluating these ads when he lacks basic knowledge about the industry.

Furthermore, Sartin, instead of actually checking facts, simply dismisses the idea that people will lose their jobs. It says that many of the stores will remain open to provide service and, thus, employ people. But it’s unclear how many stores will actually remain open and how many people they will employ. After all, it’s pretty hard to make a profit when you are only allowed to charge $1.08 per every $100 borrowed on a two-week loan. It’s clear that the payday lending “reform” legislation passed by the General Assembly is a job-killer. It would be nice if newspapers actually did some digging into the facts before writing on this subject.

I find it highly ironic that the Cleveland Plain Dealer is attacking the television ad from Ohioans for Financial Freedom for inaccuracy. This ad, which discusses the referendum on the payday lending ban, discusses the invasion of privacy created by the new law but the Plain Dealer accuses it of being untruthful. As I have discussed here many times,  editorials from the Plain Dealer and other newspapers have played very fast and loose with the facts about payday lending. These editorials often parrot the talking points of anti-lending activists and usually contain a variety of outright falsehoods. I’m awaiting the day when the Plain Dealer holds itself to the same standards it is holding Ohioans for Financial Freedom.

In an editorial today, the Cleveland Plain Dealer once again decided that getting its facts straight is optional when it comes to smearing payday lenders. It makes the completely unsupported claim that these lenders make “grotesque profits … leeched from consumers.” As was the case with the legislators who supported the payday lending ban, it is clear that the Plain Dealer editors have never actually looked at the scholarly evidence on payday lending. Instead, they rely on the false impressions levied by self-appointed “consumer” advocates.

To pick one study from many, this article published in the Fordham Journal of Corporate and Financial Law states:

this study finds that payday lender profit margins are less than half that of their mainstream lending counterparts…. For pure payday lenders, the average profit margin was 3.57%. When including pawn operators, this figure more than doubles to 7.63%.

These figures indicate that payday lenders are not overly profitable organizations. Contrary to conventional wisdom, these firms fall far short of profits for mainstream commercial lenders. In addition, profit margins of payday lenders are far below those of Starbucks. The profit margins of Starbucks for the measured time period were just over 9%. This is almost 2% more than all payday lenders, and more than double the pure-payday lenders. These figures indicate that arguments against payday lending, couched in terms of preventing excessive profits, are unfounded. If companies should be limited to a certain profitability measure, citizens would be better off fighting Starbucks than their local payday lender.

Anyone who looks at the scholarly data on payday lending can easily see that the common attacks on this industry bear no relation to reality. Unfortunately, the General Assembly and Governor Strickland (as well as the editorial boards that were prominent in pushing for a payday lending ban) decided that anecdotes, name-calling, and agenda-driven “studies” would carry the day.

The Coalition on Housing and Homelessness in Ohio (COHHIO) has been a big supporter of the push to ban short-term loans, aka payday lending. There’s nothing wrong with individuals banding together as an organization to lobby government. That’s the essence of the First Amendment. But is it proper for taxpayer-supported organizations to do so? Or, to put it another way, should organizations to which you, as a taxpayer, are forced to hand over your money be pursuing a political agenda?

COHHIO receives a significant portion of its funding from government grants. Now, according to its tax forms (available if you are a member of Guidestar), it spent almost $500,000 in 2006 on lobbying. That’s more than it spent on “training and technical assistance” to help the homeless. Now, I’m sure there are requirements that the money it gets from the government is kept separate from its lobbying money and that COHHIO has the proper firewalls between funding sources. I’m not accusing them of breaking any laws. I’m concerned about the wider issues here. The government funds, at the very minimum, support the overhead and salary of COHHIO officials. Without these funds, COHHIO would have a difficult time doing its work, whether that is lobbying or providing “training and technical assistance” on homelessness issues.

You have no choice but to support COHHIO’s work. Even if you disagree with them, they get your money. Is that right? Is it right that a group gets taxpayer dollars and that this group may be working against your interests before the General Assembly?