Hard Times, Hard Money
Toledo Blade - February 27, 2007
The Toledo Blade
By Robert Vitale
ONE harbinger of so-called payday loans is a languid economy in which poorer consumers consistently find themselves with too much month left at the end of the money.
How ironic, then, that here in Ohio one segment of the economy not still in a swoon is the business of lending cash at rates that would make the proverbial mafia loan shark blush with both envy and embarrassment.
A report by the watchdog groups Policy Matters Ohio and Housing Research and Advocacy Center points out that the number of check-cashing outlets in the state has grown wildly in the past decade and now outnumbers those of the three most-popular fast food restaurants.
Where there were six in Lucas County in 1996, for example, last year the number had mushroomed to 67. Ottawa County is one of just two counties in the state that have no licensed payday lenders.
They’re called payday loans because consumers in financial straits typically borrow relatively small amounts and repay it with their next paycheck, usually in two weeks.
But, much as the lenders would like the borrowers to believe, payday loans are not easy money. Just the opposite, in fact. Just check out the interest rates that can be levied under state law on loans of up to $800 – close to 400 percent on an annual basis. And terms can run up to six months, pushing the actual rate even higher.
Simply put, the advertised terms seem reasonable but they surely fall into the category of what used to be – and still should be – called usury.
As we pointed out in this space nearly seven years ago, usury is the practice of charging an unconscionable or exorbitant rate or amount of interest in a business transaction. In biblical times, usury was considered a moral offense.
Obviously, today’s state lawmakers, their vision clouded by lobbyists from the financial services industry, have lost sight of any obligation to determine right and wrong as it applies to business.
As we conceded in our 2000 editorial, no one is forced to take out a payday loan. And lenders are taking a very great risk doing business with people who can’t get money any other way.
Nonetheless, the penalty for poor judgment should not be unconscionably high interest rates that make it easy for an unwary borrower to fall impossibly behind in making payments.
This is a quaint concept, to be sure, in today’s laissez-faire business environment, but it’s a valid lesson that needs to be repeated from time to time until the legislature gets the message.