Opponents say Issue 5 limits financial choice

LIMA - With credit tight the world over and the country in the grips of recession, now is not the time to limit the financial options of working people, according to Bridgette Roman.

She is a member of the Ohioans for Financial Freedom Committee and a lawyer for CheckSmart, a "payday lender." She was in Lima on Friday to explain why State Issue 5 is a bad idea.

Issue 5 would affirm the portion of Ohio House Bill 545, passed in May, that limits the amount payday lenders can loan to an individual to $500 with a limit of four loans per year, extends the repayment period to a minimum of 30 days from the standard two weeks, and limits interest rates to an annualized rate of 28 percent. A "yes" vote on Issue 5 would keep those limits in place; a "no" vote would repeal them.

Roman said the limits are bad for business and individuals and calls H.B. 545 bad legislation used for political gain.

"This was a political snowball going downhill," she said.

She said Issue 5 proponents' figure of 391 percent annual interest is misleading since most loans are for only two weeks. The lender doesn't have an extended period of time to recoup the cost of the loan. The charge of $15 per $100 borrowed on the loans is a better deal than the late and overdrawn fees at most banks, Roman said.

"An overdrawn check could cost $39 per item, plus daily fees," Roman said. "If I'm spending $15 to prevent that, I'm making a sound financial decision."

She said payday lenders are a necessary option to borrowing from a bank or facing fees. "Because this is a difficult time, this is no time to take credit options away from people," she said.

Banks and credit unions don't usually make loans the size of payday lenders and generally charge a lot more in origination fees, she said.

Roman said the limits imposed by H.B. 545 will make it difficult for payday lenders to stay in business. She said 150 lenders have already shut down because of the difficult environment the bill creates.

Her own employer, CheckSmart, employs 750 people in Ohio. The industry overall employs roughly 6,000, she said. CheckSmart pays its employees an average salary of $30,000 with generous benefits and a college tuition repayment program. Those jobs will be lost if H.B. 545 is left intact, she said.

Much as the federal legislative effort to make more home loans available to low-income people fed into the current financial crisis, Roman says attempts to legislate and restrict payday lenders may have unintended consequences.

She cites a November 2007 study by the New York Federal Reserve Bank that showed bankruptcies and return check fees increased in Georgia and North Carolina after those states banned payday lending.

"While our findings contradict the debt trap/addiction hypothesis against payday lending, they are consistent with alternative hypothesis that payday credit is cheaper than the bounce ‘protection' that earns millions for credit unions and banks. Forcing households to replace costly credit with even costlier credit is bound to make them worse off," the study concludes.

Federal Reserve report on payday lending:

www.newyorkfed.org/research/staff_reports/sr309.pdf

Issue 5 Proponents: www.yesonissue5.com

Issue 5 Opponents: www.ohioans4financialfreedom.com