Predatory Lending victory in Ohio Supreme Court

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http://www.morningjournal.com/general-news/20140611/ohio-supreme-court-sends-elyria-mans-payday-loans-case-back-to-trial-court

Due to some poorly worded legislation in Ohio's Mortgage Loan Act, there is a loophole that payday lenders use to issue small loans with triple-digit interest rates.

235% is a yearly rate, so for 2 weeks it would be 1/26 less, or (235 /26) = 9%

he has to pay 9% interest on the money be borrowed.

^Which is absurd. 9% of the principle is a ridiculous amount, especially for those who make minimum wage who are the primary targets.

It's the difference between paying between paying $9 to be floated $100 to make it to payday (9%) and paying $0.35 for borrowing the same amount for the same time period at 9% at an annual rate.

I shall defend the payday lender.

Why?

Business reality.

A BANK doesn't lend you of its corpus. They extend you CREDIT. The money comes from someone else. Hence, they make money no matter what and they don't really risk anything if you default.

A Payday Lender is a private business. They are lending you of their assets, and if you default, they will probably spend more money than it's worth to collect. Likewise, a loan that only lasts 2 weeks or so WILL NOT be economically viable if the repayment is only 5% or so in interest factored ANNUALLY.

Finally, you DO NOT have to do business with a payday lender. Most states require an up-front disclosure of what you are going to be charged and what fees/penalties will apply if you don't repay on time. Don't like it, don't sign on the dotted line.

Saying 200-300% interest is excessive is LAUGHABLE when you're talking about lending your own money to someone for a short time and needing the return on investment to not only be enough to pay yourself a salary, but keep a brick-and-mortar store front open month after month.

Banks can extend a "line of credit" account that the holder can draw upon at any time that has more agreeable interest rates and fees, but you have to qualify to get it, and it often isn't done the same day you want to borrow the money. So, you need to have foresight when setting up this option.

Lots of business do well off of consumers who don't think, don't plan and don't shop around for the best deal. There is nothing exploitative or criminal about that.

There are plenty of banks that are private businesses, still held to the same regulatory standards.



The only way that this is not economically viable is if they only lend out a few bucks to in total with no other revenue source. Most payday lenders have lines of people every single day. Not to mention the fact that the majority of those borrowing are going to take an extended period of time to pay them back or miss a payment, resulting in massive fees and/or fines, as well as the fact that most payday lenders require a signed agreement that they can seize a portion of your wages each paycheck if they don't get their cash on time (hence the PAYDAY loans). Not to mention that a lot of them try to get you to make car title loans, and will seize the car over a few bucks to make quick and easy cash at auction. This is the reason that you might find more than a dozen payday lenders in the space of a few city blocks in some areas; there is no real competition because there are plenty of poor people to screw over, and it really doesn't take too many of them to make a load of quick cash with relatively little actual financial risk.[/quote]



True, but when your paycheck comes out to $200 in a week after taxes and the unexpected happens (which it will), it sure would be nice to still be able to buy food for your kids and pay your electric bill so it doesn't get shut off mid-winter.



So the 10-20 pages of contract with dislosures and terms of use written in technical and legal terminology are going to be fully understood by someone with a poor public education background?



Renting a building in a crappy, run-down area is not usually cost-prohibitive for even a small low profit business, not to mention the fact that there are buildings in my area that I could buy outright for $10-20K that are much larger than I would need for a payday loan storefront. If you were willing to put a little renovation work into the building you could possibly get one at the city property auction for a few hundred bucks.
As for lending your own money, payday lenders usually use a business line of credit from a financial institution paying 10% or so interest for the same amount of borrowing time, so making 2000-3000% gross profit on borrowed capital prior to adding in total fees and penalties does seem quite excessive to me. And don't forget that any non-payments at year's end are entirely tax deductible.



So if you are poor and have had money trouble in the past, you're just SOL? How likely is it that if you need to get a payday loan you are going to qualify for a line of credit?



True, many do profit from people failing to shop around, but with those who need payday loans, where exactly do you expect them to find a better deal?

And as for planning, when you make jack-sh*t at a minimum wage full time job (or a part-time job, or a small SSI payment), how exactly are you supposed to plan for unexpected required expenses? If your kids breaks his arm, your car breaks down, or you get sick and have to take a week off work (unpaid), how is their financial need a failure to think or plan?

And just to be clear, I'm npot arguing about whether it is legal or how profitable it is, I am talking about how the poor get screwed over a whole lot more than those who are doing ok financially. It is not fair. It is not right. And I am getting a little sick of people blaming the poor for being poor when they have so much more aligned against them.

The simple fact is that there is no right to make someone LOAN you money. Plan your life as if it's not an option, and you won't find yourself using it.

Payday loans are like "tramp stamp" tattoos. They sound like a good idea at the time, but they can bring a lifetime of regret.

We live in a society that wants to satisfy "instant gratification" thinking. People did without someone bailing them out on a moment's notice for hundreds of years. Now, the quick fix is to make yourself an indentured servant or loose your car (a more valuable item) for a small amount of money to fix a problem RIGHT NOW.

Have an unexpected medical bill? Most everyone will work a payment plan out with you.

Owe the court money for a ticket? Most courts will work a payment plan out with you.

Running to the payday lender is stupidity and laziness.

Don't like payday loans? Then it's back to pawning stuff for a fraction of it's value. Don't like pawnshops? Then it's back to the street loanshark, who has option for collection other than wage garnishment. Soft prohibitions inevitably lead to black markets when there's demand for a product or service, it's pretty well established at this point.

Have an electric bill overdue? The electric company shuts off your power.

Have a gas bill overdue? The gas company shuts off your water.

Have a water bill overdue? The water company shuts off your water.

Have hungry kids and no money? The grocery store tells you to go f*ck yourself.

Owe the clerk of the courts administrative court costs and don't have the money on time? In many localities you do jail time (including East Cleveland up my way).

Car breaks down and you can't get to work? Most minimum wage employers won't pay you, and many tell you to look for a new job.

Child support payment overdue? Have fun spending time in prison (possibly for years).

Rent overdue? Goodbye primary residence.

While that is all tragic, explain why the LENDER is obligated to give you money so cheaply that he can't make a living doing it?

If you have such an issue that these people fill a market need because BANKS will not do it, then take it up with those who regulate the banking industry who are not meeting the public need.

Payday lenders deal with people with poor or no credit and who no bank will touch. They take a lot of risk doing so, and even if they use a line of credit they have with a bank, the bank isn't risking it's assets, and they are still risking their assets as they are on the hook for that line of credit. Payday lenders don't operate like banks do. The banks are the bigger criminals when you realize where they get the "money" they lend compared to private persons or small companies without a bank charter.

Remember the housing bubble? That was the result of FORCING banks to lend to people with unacceptable credit so they could buy homes. The forcing of credit resulted in a loss of affordable homes in the housing market (if everyone will be cleared to by a McMansion, they won't make lower-income housing). The risk of all these poor to no credit borrowers was diffused by repackaging the high risk loans into other items...creating the mess that eventually went BOOM all over the world.

You have no right to make someone lend you money to get yourself out of a financial jam. Every time we try to do it, we either make people close their doors or they find a way to make it profitable...usually with a delayed disaster to be reckoned with.

No banks were FORCED to make risky mortgages, quite the opposite. Banks sought out risky mortgages because they were able to pawn off the risks and keep the rewards. There was no element of competition to keep anything in check, which is also a concern with payday loans.



No one is being forced to lend money. The fact that so much profit can be made off of so few means that there can be 2 payday lenders on every block over the space of dozens of square miles. If their interest rates were capped (at say, 35% even), they would still make a fortune off of the hgh percentages of late fees they would get to assess; there would just be more competition among them to secure more customers. Yes, some of the payday loan places may have to close because they can't keep up, but that is the way the business world is supposed to work. The way things are now, any pressure of competition among payday lenders is non-existent.