BuckeyeBlog

Yesterday’s Youngstown Vindicator had an editorial opposed to payday lending that had this line: “Ohioans should recognize that payday lenders are an institution whose time has passed. They are a product of a laissez faire attitude that is supposed to reflect an enlightened view that we should all be free to make our own economic decisions — good bad or terrible — and free to succeed or fail on our own.”

 So the Vindicator is opposed to people being free to make their own economic decisions. That means it supports giving that power to the government. This is the same government which, in Ohio, can’t seem to balance the state budget. It’s the same government that enacts tax policy which puts the state at the bottom of the pack in terms of creating a friendly business climate. At the federal level it’s the government which brought you record deficits, Fannie Mae, Freddie Mac, and the Wall Street bailout.

The Vindicator thinks the government, and not you, should be making your financial choices. Is that what you really want?

A new report has been released that backs up the claim that the payday lending “reform” legislation passed earlier this year will result in significant job loss across the state. Backers of this legislation deny this, but it seems the data doesn’t support their contention.

The report by William D. Keip, President of Keip Government Solutions, concludes the following:

   10,308                    Total Ohio jobs lost

     6,000                    PayDay Lender jobs lost

$495.3 million         Economic Activity

$218.5 million         Total reduced earnings

$145.1 million         Reduced earnings-direct PayDay Lender jobs

$262.0 million        Total reduced spending

$   14.8 million        Loss of state/local Ohio taxes

Why is this the case? Keip’s report discusses the methodology he used to come up with these figures. However, these numbers rest on the assumption that payday lenders across Ohio will go out of business if Issue 5 is not rejected. Those supporting Issue 5 say this is not the case, that payday lenders will still exist but that they will merely be charging lower interest rates. Is this true? The answer is clearly no.

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I’m skeptical of bipartisanship. It usually means that Republicans and Democrats are coming together to screw you over. The press conference with the Democrat and Republican Attorney General candidates yesterday only adds evidence to support this view. Richard Cordray and Mike Crites put aside their partisan differences to support something both believe in — government needs to tell you how to run your life.

Both these candidates (and two former Attorneys General) came out in favor of Issue 5, the ballot issue that would ban payday lending. Interestingly, most of the talk seems to be centered on their assertion that the campaign opposing Issue 5 is “exaggerated, misleading and downright false.” In fact, the Godfather of the anti-payday lending movement in Ohio, Bill Faith, said that he was considering filing a false statement complaint against those seeking to keep payday lending legal.

When I read those words I thought I was in some sort of alternative universe. If anyone deserves to be sanctioned by the government for making statements that are “exaggerated, misleading and downright false,” it’s those who oppose payday lending. I’ve demonstrated numerous times here on this blog how those who are campaigning to end payday lending in the state make statements that have no basis in reality. The first, of course, is the idea that this ban is merely “reform.” Make no mistake about it, limiting payday lenders to 28% APR will kill the industry. I’m unsure why those opposing these loans aren’t honest about this, but they like to obfuscate their real goal and claim that payday lenders will be able to stay in business. And then they have the gall to accuse their opponents of being liars.

I’m currently helping put together a policy brief that exposes the downright falsehoods being perpetrated in this campaign. I’m taking the actual words of payday lending opponents and showing how these opponents are either being dishonest or completely ignorant. Perhaps I’ll steal Mr. Faith’s idea and send it to the state election commission and seek to have Mr. Faith and his allies sanctioned for making false statements.

Although a few liberal clergy want you to think that God condemns payday lending, it seems there is a difference of opinion on this subject. As the Dispatch reports today, a Christian group has come out in opposition to the ban on payday lending.

There are religious aspects being discussed in this debate (as I examine here), but no one should assume that there is a correct “Christian” position on this. Christians can differ on this issue. The Bible does not have a clear roadmap to discern how one should vote on Issue 5. In fact, the theological implications of banning payday lending are so unclear that one should be skeptical of anyone who claims to know God’s will on this subject. This is a vote on economics, not theology. Given this situation, as I’ve demonstrated in a study and Dr. Tom Lehman has demonstrated in his testimony before the General Assembly, it’s clear that banning payday lending is a horribly misguided way of helping Ohio’s economy.

During the debate over payday lending, there have been quite a few people who condemn it as “usury.” For instance, this recent letter to the editor in the Toledo Blade accuses payday lenders of committing usury, “which is prohibited by the Lord” (although it seems at least one Christian group takes an opposite view of payday lending).

I decided to actually look into the issue of what the Bible says about usury and found that usury does not mean excessive interest; it means all interest. You can’t condemn payday lending as usury without also condemning all lending of money at interest (including your savings account). Read my article on the subject here.

The misinformation about payday lending continues. In his Sunday column in the Cleveland Plain Dealer, Thomas Suddes engages in a variety of false attacks on payday lenders. For instance, he claims that payday lending has been “obscenely profitable.” Like every other claim in his column, though, he doesn’t back it up with any facts. If Mr. Suddes had bothered actually consulting the academic literature about payday lending, he would know the average payday lender makes a profit between 3% and 7%. How is that small profit margin “obscene”?

I guess I can’t really rely on someone like Mr. Suddes to actually be bothered with facts, though. After all, he goes onto say that that payday lenders “pillage” Ohioans. Since pillaging is the “act of looting or plundering,” I’d say that Mr. Suddes’ understanding of English is about as good as his understanding of economics. Borrowers voluntarily go to stores to get payday loans. They know the fees being charged and the time frame within which they must pay back the loan. For offering this service to people who need some quick cash, payday lenders are “looting and plundering”? That’s a pretty skewed way of looking at things.

It’s unfortunate that a columnist like Mr. Suddes can blatantly ignore the facts in his desire to smear payday lenders and the free market. But as we have seen during the debate over banning payday lending, facts are in short supply among those who are opposed to payday loans.

A couple days ago blogger and radio host Maggie Thurber put up an excellent post analyzing Issue 5, which is seeking to overturn the legislation banning payday lending. It’s a must-read for anyone looking at what the legislation actually contained. Her basic point, though, can be summed up with these questions:

Since when is it the role of the government to track what you borrow, when and how much? Since when is it the role of government to tell you how you can use the money you borrow? Since when is it the role of the government to decide whether or not you need or should take a class in finances? Since when did Ohioans think it was okay to grant government this kind of intrusion into our daily lives?

Exactly. I couldn’t have said it better myself. So I didn’t. You’ll be a better informed voter if you read her post.

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.

The debate about payday lending has been notable for the anti-lending forces as well as those in the press (am I being redundant?) fail to grasp basic facts about the payday loan industry. I have documented that repeatedly on this blog. It seems that I have more work to do, however, based on today’s editorial in the Dayton Daily News. Let me just comment on a few of the more egregious departures from reality the editors make:

There are alternatives to payday lenders. Credit unions, for instance, and even some banks will make short-term loans for much more reasonable rates.

Really? Then why do people choose payday lenders who, in the view of these editors, rip them off? Are these consumers idiots? Well, no, since the notion that credit unions or banks are going to be making high-risk, unsecured loans at low rates to a large number of people is ridiculous. It isn’t happening now and it won’t happen when the ban goes into effect. The fact is that these high rates are necessary to provide the product that borrowers want and need.

After Sept. 1, short-term loans simply would be capped at 28 percent on an annualized basis, versus the 391 percent that can be charged now. Borrowers would pay $18 for a two-week $300 loan, not $45.

No. A 28% APR on a two-week, $300 loan is $3.23. Would you loan money to someone for that low of a rate? Would you make a profit if you did?

But when lawmakers looked into the payday businesses’ practices, they found that many customers were being encouraged to take out loan after loan because high fees were trapping them in debt.

That sounds like lawmakers actually did a study of the issue and discovered the borrowing patterns of those who take these loans. That didn’t happen. They heard from a handful of people who needed a payday loan at the time but, in retrospect, didn’t like the price they paid. But these borrowers agreed to pay the price at that time, indicating that the viewed it then as a fair price. Furthermore, there was no evidence that people were being encouraged to take out more than one loan. The plural of anecdote isn’t data. (more…)

I have never understood those who decry gridlock. I’ve always thought that if the two parties are fighting in Congress or the General Assembly it means they aren’t passing laws to take our money or restrict our freedom. As the latest example of bipartisanship in Columbus shows, when Democrats and Republicans team up, it’s usually going to mean that you end up with less money in your pocket or less freedom to make your own choices.

Democratic Governor Ted Strickland and Republican legislative leaders John Husted and Bill Harris are joining up to fight efforts to overturn the ban on payday lending. Of course, they claim that it’s not a ban, it’s just a “reform.” Yeah, just like Washington, D.C., didn’t ban handguns — it just made them impossible for people to own. If you enact a law that makes it unprofitable for a business to make a profit, it’s a ban, pure and simple. To deny that the payday lending law is a ban is to either be completely ignorant of the law or a liar.

Considering their statements on payday lending, I’ll give Strickland, Harris, and Husted some credit and conclude that they are merely ignorant. Those who have supported this ban have consistently shown they have no idea about how payday lending works, who uses payday loans, how to calculate a simple percentage rate, or anything about the basics of the lending market.

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