Payday loans no help, credit counselors say
Posted October 16, 2008 in Press Releases
Policy group's small survey finds no fans of short-term credit
By Jim Siegel
A Cleveland research group says that Ohioans who try to help people drowning in debt generally see payday loans as part of the problem.
The liberal-leaning Policy Matters Ohio said yesterday that 17 accredited credit counselors from across the state answered its survey. They said that more than one-quarter of their clients' debt included payday loans. Those clients averaged four payday loans apiece, and some reported as many as eight, the report said. The average payday-loan debt was about $1,000.
Ohio voters will decide Nov. 4 whether tough new state payday-lending regulations will prevail.
Only one of the counselors said he would recommend a payday loan, and then only under "extreme conditions." The report said most had concerns about the interest rates on payday loans, which compounds to 391 percent annually, and the two-week term of the loans.
Every respondent, the report said, indicated that payday loans added to their clients' financial problems.
"You can't get out of debt by taking out another loan," one counselor said.
Researcher David Rothstein, who conducted the study, said he was surprised by the extent to which counselors said payday loans hurt people's ability to pay other bills.
"I often thought these were very small amounts of money people were taking out," he said. "But when a lot of them are outstanding, it adds up."
Reacting to the study, the conservative Buckeye Institute called it presumptuous to second-guess why people get payday loans.
"Most are not the ignorant borrowers portrayed by the opponents of payday lending," said Marc Kilmer of the Buckeye Institute in Columbus. "Instead, they are making an informed choice that is rational to them."
Policy Matters recommends a "yes" vote on Issue 5, which would restrict payday loans to a maximum 28 percent annual interest rate under House Bill 545. A "no" vote would allow lenders to continue operating as they do now, charging $15 per $100 on a two-week loan.
Lenders say they cannot operate under a 28 percent rate, which would cut off a valuable credit source to those with nowhere to turn.
Kim Norris, spokeswoman for the coalition opposing Issue 5, said a payday loan is often more affordable than late fees or bounced checks.
"It's easy for wealthy politicians and activists to dismiss short-term payday lending options, in large part, because they have never been in a tight financial position themselves," she said.