Proposal to regulate payday loans crosses line

Date 10-9-2009

It's a classic issue in a free open-market economy where consumers choose how they spend and borrow money on their own.

Should Ohio and other states regulate payday lenders just because consumer advocates think they are bad deals that draw people into a cycle of debt, foreclosures and eventually bankruptcies? Or should consumers decide on their own if short-term $500 loans are better than other credit options?

Ohio has tried mightily with little success to reform payday loans even after voters stared down a multi-million dollar campaign by payday lenders and approved a law many thought would put the industry out of business here.

Instead, payday lenders found a way around Ohio's 28 percent interest cap and $500 loan limit by acquiring new licenses, creating new fees and, according to the (Cleveland) Plain Dealer, charging more money than before. In essence, last fall's vote was irrelevant.

Now, state Rep. Matt Lundy, D-Elyria, wants to close the loopholes once more by capping interest rates to 28 percent on all loans up to $1,000 due for repayment in three months or less and eliminate all check-cashing fees.

This all boils down to our opening question, one that was really at the heart of the events leading to our current recession. Few disagree some regulation is needed to protect consumers, but few want the rules getting in the way of legitimate business opportunities.

Ohio is not alone in wrestling with this issue. Just last week, South Carolina Gov. Mark Sanford vetoed a bill regulating the industry even though two other Southern states have "banned" payday loans.

"Boiled down, it is this administration's abiding belief that government's role is not to protect people from their own actions, unless those actions in substantial form impact the lives of others," Sanford said in his veto letter. He said the recession leaves consumers needing the ability to get access to cash to avoid eviction, foreclosure, bankruptcy and having their lights turned off, according to the Associated Press.

We generally agree with Sanford and reluctantly supported payday lenders in this column last fall, although our editorial board notably was divided on the matter.

Even though Lundy's Ohio proposal sounds rational on the surface and deserves a full hearing, we think it again crosses the line of what should be regulated and what might create new problems or implications for all lenders. It also fails to address the reality of Internet payday sites that fall outside the scope of Ohio law.

Still, this industry comes across as somewhat distrustful, one that will do anything to keeps it gravy train of cash flowing into the profits column.

If it's so darn lucrative, consumers might want to reconsider their options.

Source:
http://www.newarkadvocate.com/a