Short-term lenders provide service at a value
The Plain Dealer
February 22, 2009
Ted Saunders The Plain Dealer, in its article Monday titled "Loophole gives way to sidestep payday law," missed the opportunity to present a full, balanced and complete picture of consumer lending options in Ohio. While using terms like "loophole" and "clone" gains quick attention, fuel ill will and sell newspapers, such terms do little to explain the real consumer lending landscape in the state.
The landscape in Ohio is largely one controlled by traditional banks -- banks that extract significantly higher fees than state-licensed lenders. The Federal Deposit Insurance Corp.'s Study of Bank Overdraft Programs (November 2008) noted that "overdraft per-transaction usage fees ranged from $10 to $38, and the median fee charged was $27. . . . In this context, a $27 fee charged for a single advance of $60 that was repaid in two weeks roughly translated into an APR of 1,173 percent."
It is essential to understand that the Ohio Legislature controls what state licensed lenders can do. Throughout the legislative hearings on House Bill 545, time and again legislators questioned those testifying as to whether other existing loan acts provided a business alternative. Whether legislators recognized the risk to thousands of Ohio jobs if they entirely eliminated small lending or whether they recognized the growing need for credit alternatives in light of the growing trouble in the economy, the fact is that it was the legislature itself that strongly urged former payday lenders into existing lending statutes. Now, when lenders pursue the very course suggested by our legislators, The Plain Dealer condemns them.
Federally chartered banks and credit unions fall outside of the control of the Ohio Legislature. Their reactions to the passage of HB 545 and State Issue 5 is interesting. No sooner had these initiatives passed than big banks, such as Fifth Third and US Bank, sought to fill the void created by the end of traditional payday lending. Credit unions began offering so-called "stretch pay" programs, which in addition to 18 percent interest, required borrowers to pay a fee of $35 for a $250 loan or $70 for a $500 loan. Fifth Third's "Early Access Program" charges borrowers $2 for every $20 borrowed up to a maximum of $500, even if the loan is outstanding just three or four days. US Bancorp offers a short-term credit line on terms similar to those offered by Fifth Third.
As the quick movement of banks into the space previously occupied by payday lenders demonstrates, the state of Ohio may have eliminated payday lending, but the consumer demand remained. The need of Ohio's consumers to gain access to readily available funds did not subside when traditional payday lending was banned.
As the CEO of Checksmart, which previously operated payday-lending locations in Ohio, I was forced to abandon a number of retail locations and lay off many of our associates as a result of the passage of HB 545 and State Issue 5. Of the full-time positions that Checksmart was forced to eliminate, the average wage was more than $50,000. Those were good-paying jobs.
In an effort to keep hundreds more Ohio employees off of the unemployment rolls, we began operating under the Mortgage Loan Act -- one of the legislative models that we had been urged to adopt during the hearings on HB 545. The Mortgage Loan Act is no "loophole." Instead, it is a more restrictive and well-thought-out legislative enactment that governs more than 300 lenders in Ohio. Lenders such as Beneficial, CitiFinancial and Toyota Motor Credit are licensed under this legislatively created framework. The rules are stringent in terms of both customer protection and regulatory oversight.
The simple fact, one that your article failed to accurately note, is that borrowers under the Mortgage Loan Act are paying far less for their loans than they were under the former payday loan laws. When a borrower takes a check or money order as proceeds of a loan, the borrower may (and many do) take that instrument to his or her bank and deposit it free of charge. For the borrowers who deposit or cash their checks at their own bank, their real cost for a two-week $400 loan is under $30, which is less than the $60 paid by them under the former payday loan law and less, according to the FDIC, than the cost of an overdraft at an FDIC bank.
The Plain Dealer's criticism of former payday lenders turning to other legislative enactments for alternative business models is misguided because it fails to recognize the significant cost savings benefitting consumers and because the decision to turn to these alternatives came directly from the Ohio Legislature. Apparently, in The Plain Dealer's eyes, only banks should be permitted to extend credit to Ohioans, regardless of their higher fees.
Saunders is chief executive of Checksmart Financial Company.
