Topic: Government Regulation
It's CRIMINAL, there ought to be a law... Its criminal, the S@#& that they toss to you. Ohio to add to the unemployment roll through government action. Oh, and make citizens decisions along the way. Payday loansby Michael Stahl
(Libertarian)
Tuesday, May 20, 2008
If you are not familiar with the economic trends of Ohio, allow me to illuminate you. The government of Ohio is engaged in a vicious competition with neighboring Michigan to achieve third world status. This is the old industrial belt, that is now not only rusting, but infected with a syphilitic degeneration brought on by intercourse with the AFL/CIO back in the tequila days. Now, the people, those whom the deranged government supposedly serves, are facing a housing crisis just like the rest of the country, coupled with a cheerful unemployment rate higher than the national average, and much, much, higher in some areas. One would think that in that situation, the Governor and the Legislature would not go about firing people, certainly not thousands of people. One would be wrong.
The act of criminal cruelty in question is the legality of the so called "payday" loans that are a thriving business in Ohio. Herein lies the problem, as outlined here , the freshly minted Democrats in Columbus are pretending to be John Edwards, blaming a lender, with wildly inflammatory language and innuendo, for the financial difficulties of a borrower in whole. This is silly on its face, and deceptively cruel in its practice. As noted above, most of the loans offered are short term, one to two weeks, at a fifteen percent weekly rate. Meaning that to get a one hundred dollar advance on your paycheck will cost you fifteen bucks. Might not be the greatest plan for financial security, but things happen in life. Lets be honest, if you are in the need of a paycheck advance, you are also less likely to repay the loan than people who don't need one.
That means of course that the company offering the service needs to charge more for that service in order to, well, keep from going broke. The syphilitic lords in Columbus think otherwise. They choose to claim that those same short term loans at fifteen percent are unfair, since if they were held for a full year, they would be have an APR of around 391 percent. This is comparing an apple to an orange, since the ultimate amount that the consumer, if they meet their contractual obligations, pays is fifteen percent, not any annual rate. The APR is a utter fiction in this case. The fear of the Buckeye Institute, here , is that this will lead to a government supported, utterly unnecessarily, credit union mini-monopoly as is the case in Pennsylvania. Of course, somebody benefits, its government after all.
Now, you might think that this is a minor issue. Its not. To the people who work here it surely is not. As the Buckeye Institute noted, to the rare listener, the name of the game here is pander, and kickback, and an increase in government control. It is unconscionable for politicians to engage in this sort of despicable crap at the expense of thousands of their fellow citizens livelihoods. Governor Strickland, I hope you can look yourself in the mirror after signing this piece of larceny, that means you will be more apt to suffer the dismal longing of purgatory, for your lack of scruples, or compassion.
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2008 Michael Stahl, all rights reserved.
Published: Tuesday, May 20, 2008
Last modified: Wednesday, May 21, 2008
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It's not quite so cut and dry as that. Many of the people who use pay-day loans are chronic users of those loans. When they receive their paycheck after bargaining off their resources the week before then they wind up taking out a new loan on the next weeks paycheck. I've seen it a lot, I live near an ARMY base.
You stated that a change would eliminate thousands of jobs, the truth is that those jobs are adding nothing to the economy except liquidity at the lowest end. These businesses are in fact syphoning off 15% (or more) of the value of those loans to make a few leaches at the top rich.
While pay-day loans can occassionally be a valuable resource to those in need the fact is that many of those businesses both prey on, and add to, human weaknesses. While I am by no means a cheerleader for government intervention, I would certainly like to see a market solution appear...micro-loans from more reputable and reasonable institutions comes to mind.
Governor Strickland needs to do the right thing for Ohio and veto HB 545. His veto would ensure that working families continue to have access to short term credit options and avoid devestating consequences for tens of thousands of Ohioans.
The payday lending industry is extremely important to Ohio’s economy. Our businesses contribute $250 million to Ohio’s economy, employ 6,000 Ohioans to whom we pay nearly $173 million annually in salaries and benefits, we occupy a total of 1,600 locations, for which we pay $77 million annually in rent. The ripple effect our business has on the state’s economy is tremendous—all of which is at risk with the passage of HB 545.
While there was a great deal of talk about providing alternatives to payday loans, there is little progress made in offering similar, viable products that are attractive to consumers. Passing HB 545 will leave Ohio’s consumers out in the cold.
Chad Underdonk sure makes some sweeping generalizations about an entire industry based his experience living near an Army base. In fact customer satisfaction surveys show the vast majority of payday loan borrowers are satisfied with the service and consider it a useful option which should not be banned. Very few complaints are lodged with regulatory agencies.
Researchers from George Mason University and Colby College recently found that "access to payday loans in their environment, all else fixed, increases a borrower's probability of financial survival by 31%." See [link edited for length]
Of course some people take out too many payday loans and get themselves into a bind. Many people eat overeat desserts and make themselves sick, but does that mean we should place a cap on the percentage of fat and sugar allowed in ice cream? Of course not.
There's an excellent article on this subject at http://www.bloggernews.net/115609
I wonder what the satisfaction rate is among customers at a crack house? The people I've known who have worked in the payday loan "industry" very much view their clients the way a dealer at the blackjack table does...as a foolish people who are wasting their money with poor decision making.
I don't wish to start an argument, and as I said there is some value in it to some users. But there are a LOT of chronic users. I did a quick google search and pulled up some statistics for Washington state for the 2004 period [link edited for length]. During that period the reporting statistic (66% of the "institutions) had a volume of about 75% of your statistics for Ohio. As always statistics can be bent to mean whatever one wants...so I will explain simply what I am doing.
For the sake of this argument I will say that anyone who has 6 or less payday loans in the course of a year IS NOT a chronic user of these systems, and anyone who has more is. Based on this number 55% are not chronic users and 45% are. The chronic 45% represent 80% of the loans given and 80% of the bottom line of the industry. In this case these statistics represent 128,000 chronic users which pay an average of over $1,200 yearly in fees for those loans. The statistics further say that the average loan is approximately $350, which extrapolates to that 45% of chronic customers paying more than three of their loans per year in fees.
If those loans were instead made as a micro-loan from an institution that charged a more reasonable rate of return then those chronic customers would save hundreds of dollars which they could then use to prevent them from getting into dangerous financial straits in the first place.
The only thing that this industry provides its customers is liquidity. And for that liquidity it charges an exorbitant amount of return. Other financial institutions could take up the burden of providing that liquidity while not fleecing the flock quite as closely. Those who make their living in this industry could further find value adding work in other industries or as micro-loan lenders in more reasonable institutions. The only "losers" in this case would be those at the top who make exorbitant returns on thier loaning investment, and a few rental properties owners who would in most cases find another renter with the improvement in the economy of having more actual work being done and more disposable income from the users of these loans.
You wrote: "You stated that a change would eliminate thousands of jobs, the truth is that those jobs are adding nothing to the economy except liquidity at the lowest end. These businesses are in fact syphoning off 15% (or more) of the value of those loans to make a few leaches at the top rich. "
Sir, those jobs also pay rent, light bills, car payments, and the grocery bill. So I'm not seeing how those jobs don't add to the economy(an economy that is faltering). Unless the clerks who would lose their jobs don't count.
As far as your living near an ARMY base, I sure would not pretend that I have some business making decisions for those guys, why do you think its appropriate for you to do so? Perhaps a fatalistic view of credit makes sense to them-collection agencies don't operate in the sandbox to my knowledge.
It sounds like you want the government to regulate one industry out of business to the benefit of another one, namely larger corporate banks, at gunpoint-that won't get more money into the economy, just more money to wall-street(and Columbus).......Come to think of it, perhaps Strickland is in the wrong party.
Nice statistics, but not useful to the principle at stake, freedom is meaningless unless you have the freedom to make mistakes-to that point it would not matter if everyone got taken for (fully aware) ride.
I'm afraid it really is just that simple.
Your thinking is alien to me, but thank's for reading.
The 15% of money that they charge to run their business would be spent on other goods by the lendees and be put directly into the economy instead of into the coffers of people who do nothing but take in money and lend it back out. The people running those business in turn could work in a more productive capacity where something is actually created or a service is rendered and therefore create and increase wealth. This is a slight simplification because it is possible in theory for the liquidity to bring improved wealth to the client (however unlikely).
If you can understand that excessive government actually adds nothing to the GDP and instead takes away from it then you should be able to understand that these payday institutions are in effect doing the same thing by charging excessive interest. For every $100 dollars of wealth they handle they take 15% out of the economy to support themselves. In industry (my background) this would be considered adding an indirect cost...i.e. it would be something that doesn't add value directly to the consumer, and therefore hurts the bottom line. A better explanation of my statements might be understood by reading "the Broken Window Fallacy" [link edited for length].
As I said in my first post I am no friend of government, I would however like to see better alternatives available to this group of at risk lendees who are being taken advantage of because of their circumstances or ignorance. This is precisely why I mentioned the ARMY base I live by. It is not because I would choose to make choices for them but because I know for a fact there is a tendency for our underpayed military (by monetary standards) to live beyond their means and then form a dependency on these institutions. Luckily for these individuals they have a built in safety net where if they screw up their finances bad enough they have free counseling from their superiors who ARE responsible for them and their finances. Those superiors are required to ensure that their soldiers can work their way out of their financial problems...while ensuring that they still maintain a place to live and food on the table. This is a safety net that is not available to the vast majority of chronic payday loan clients.
If these institutions are so great why is the clientele of these establishments almost always from those who live at or below the poverty line or with other chronic debt issues? The answer is simple...anyone with a better option for getting the liquidity they need would use it instead. That in effect means that these institutions are preying upon the weaknesses of the most disenfranchised of us...should we not work to develop better options (such as micro-lending) to serve them?
I am not advocating the destruction of the payday loan industry...however predatory I find it. I am however advocating better alternatives which in effect would surpass and replace them to the benefit of everyone (except those who receive an exorbitant amount of interest on their capital). Assuming Ohio is like virtually every other state in the union there is a maximum amount of interest that can legally be charged on loans. The payday loan industry has found a variety of methods to bypass or ignore those legal limits for years...as such the government has a right and responsibility to bring the industry down to a legal annual percentage rate...not to destroy the industry but to protect their citizens.
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2008 Michael Stahl, all rights reserved.