Frequently Asked Questions
What is Issue 5 about?
Issue 5 is a referendum backed by the payday-lending industry. It seeks to
overturn the rate cap portion of House Bill 545, the payday lending reform
law signed by Governor Strickland in June. Among other reforms, House
Bill 545 reduces interest rates payday lenders can charge from 391 percent
annual interest to 28 percent.
A majority NO vote on Issue 5 would allow payday lenders to continue
charging a 391 percent annual interest rate. The fee for a $300, two-week
loan would be $45.
A majority YES vote on Issue 5 would reduce interest rate charges to 28
percent. The fee for a $300, two-week loan would be $18.
Consumer protection advocates say the high-interest and short repayment
business model traps borrowers in a debt cycle, requiring them to take out
new loans to pay off old ones. They support a YES vote on Issue 5.
A NO VOTE: 391 percent annualized interest on payday loans
A YES VOTE: 28 percent annualized interest on payday loans
What does House Bill 545 do?
The most important provision caps the annual interest that lenders can charge at 28%, down from the 391% allowed under the old law.
What prompted the Ohio General Assembly to pass the reform package?
There was growing evidence that payday loans did not solve short-term financial problems for Ohio borrowers. Instead, payday loans caused long-term financial entrapment.
Because of the deception employed by many lenders, and the structure of the loans, customers often found themselves in a long-term cycle of repeat borrowing and constant debt.
How many people in Ohio use payday lenders?
More than 300,000 Ohio payday borrowers were trapped in an unending debt cycle last year, according to the Ohio Coalition for Responsible Lending.
Has Ohio always allowed 391% interest?
No. In 1995, the Ohio legislature gave the payday lending industry a special deal on a product that was described as a two-week loan used for the occasional emergency. The interest rate and fees needed to be higher, lenders argued, because it was just a two-week loan. So the product was exempted from the state's usury and small loan laws and was allowed to charge fees and interests which usually amount to a 391% APR.
What impact did the 1995 change have on the payday loan industry in Ohio?
The 1995 law allowed lenders to create their own demand. Borrowers moved from payday lender to payday lender to keep their loans from defaulting. Feeding on this pool of trapped borrowers, the number of lenders skyrocketed, going from 100 payday loan storefronts in 1996, to more than 1,600 today.
If the reform law stays in place, will the payday lenders disappear from Ohio?
The reform law does not eliminate jobs or force payday lenders to close their doors. The bill simply prevents lenders from charging 391% APR. Multiple product lenders, such as pawnshops, check cashers and Rent-a-Centers will continue regular operations. According to the Ohio Department of Commerce, hundreds of payday lenders are taking the legal steps to continue operating under the new law, suggesting many think they still can make money in Ohio without trapping their clients.
The District of Columbia recently capped payday loan rates at 24%, where more people turned to credit unions that offer short-term loans at much lower rates than payday lenders, according to a July 26 report in the Washington Post.
Who wants to repeal the new law?
To date, the national payday lender trade association is the only donor supporting the repeal effort.
Some lenders have said that using the Annual Percentage Rate -- or APR -- to measure the rates charged is misleading. Why is APR used?
Reform advocates did not come up that calculation. Former Federal Reserve Chairman Alan Greenspan gets the credit. In 2001, the Fed required small loan lenders to disclose the APR as a way to compare and contrast the cost of credit, just like mortgage lenders, auto loan lenders, and credit cards are required to do.
Do most people use the payday loan for an emergency, then get their financial house in order?
The typical payday borrower takes out 11 to 12 loans per year when accounting for multi-shop borrowing. Once borrowers begin the payday lending process, it.s often hard to close out the original loan, and they typically wind up involved in the product repeatedly for up 18 to 24 months.
An expert hired by the payday loan industry, Pat Cirillo of the Cypress Research Group, confirmed the statistic when she testified on behalf of the payday lending industry.
Isn't the government interfering with private business when they limit the maximum APR to 28%?
Part of the state legislature's job is to establish fair standards for businesses and consumers. Loosely regulated lenders can hurt all citizens, not just borrowers, as evidenced by Ohio's and our nation's foreclosure and credit crisis.
Government limits on the rates for lending date back to the times before Ohio was even a state. The first law specifically setting a maximum interest rate in the Northwest Territory was passed on November 15, 1799. The first law concerning maximum interest rates and usury passed by the Ohio General Assembly dates back to 1804.
Didn't Congress recently cap paday loan rates for military personnel?
Yes. At the request of the Pentagon, Congress capped the interest rate payday lenders can charge military personnel at 36%, saying that payday lending was lowering troop morale and interfering with the combat readiness of the nation.
What can I do to help?
VOTE YES ON ISSUE 5! |