mgroves

Ah, that pesky, meddlesome government is at it again!

A recent law was passed in Ohio that all but makes payday lending illegal.

In case you aren’t familiar with them, payday loans are short-term (15 days) loans. The way it works is that you go to one of the payday loan stores with a post-dated check for the amount you want plus a fee (around $10-$15 per $100 you want to borrow). They check your ID, ask for paycheck stubs to demonstrate that you are gainfully employed, and maybe some other things to verify your checking account and current address and such. They don’t check your credit. They then give you the amount you want in cash. If you don’t pay it back in 15 days, they will cash your check.

So what’s the big deal? Critics (or as I like to call them: meddlers) say that these loans are irresponsible and predatory. The fees amount to 391% APR and many loans result in a downward spiral of borrowing to pay off borrowing.

Wow, that sounds horrible, doesn’t it? Those poor, defenseless, stupid poor people who can’t make good decisions and pay 300% on their loans! We know what’s best for them! The government should do something! There oughta be a law! Yeah, that’s the ticket!

But wait. There’s already a law: it’s illegal to pay off a payday loan with another payday loan. Makes sense, doesn’t it? As so often is the case, why make new laws when you can just enforce the existing ones. But I digress…

Now we have a new law that restricts payday lending to 30% APR. Which means they can charge like $1.08 per $100. Which means they can’t stay in business, and they have to fire 6000 people, and 1600 landlords have to find new tenants (and that’s just one company).

Meanwhile, the banks can charge $30 for an overdraft fee, plus another amount every day the account is overdrawn, none of which is disclosed as “APR”. Credit card companies charge 30% APR, fine, but these helpless, mouthbreathing poor people who can’t be trusted to make their own decisions will, of course, only pay the minimum. On a $500 balance, they will pay $294 in interest over 3 years(*).

That’s assuming they can even get a credit card in the first place. If they are going to Checksmart, they probably don’t have very good credit.

So what are they supposed to do when it’s time to take their kid to the doctor or get their car fixed? I guess they could just pay a late fee on their bills instead (also not disclosed as APR, oddly enough), go to a pawn shop, steal the money, suffer the embarrassment and relational strain of borrowing from friends and family, go on a welfare program, or just skip the doctor’s appointment. Fantastic alternatives all.

Ohio politicians (both parties, now, this had very broad support) claim to want to bring jobs to Ohio and make it friendlier to business. So far, that’s only been lip service. Color me shocked.