What News from Ohio?

CI-PREDATORY-LENDING TORONTO, ON - FEBRUARY 27  -
TWO payday loan stores across the street from each other near the intersection of Weston Road and Lawrence avenue west. 
  ACORN Toronto is hosting a forum to discuss its campaign to get the City of Toronto to create a minimum distance separation bylaw between payday loans outlets to limit the number that can exist in certain areas. February 27, 2016. Carlos Osorio/Toronto Star

 
Ohio is known for its leniency to payday loan industry; thus, there is no surprise that Canton has got a fair number of payday loan places.

The same is true here as in entire Ohio – there are much more such stores here than in any neighboring states; the city itself is pretty notorious among those who deal closely with finances.

As a matter of fact, all the stores that are located around the central shopping mall are quite in demand among the locals. In fact, there is a great number of people who come here on a regular basis – almost monthly, or bimonthly – to get some cash till next paycheck.

It might look strange, especially from the point of view of the Consumer Financial Protection Bureau, and similar institutions and individuals advocating for complete ban of the industry.

However, for the regulars of these stores the situation is seen from a slightly different angle. Most of these people are low-income individuals who for various reasons have either no or very limited access to more traditional credit products; most of them are unable to apply for a bank loan, credit card or the like. Many of them have neither credit record that is sufficient for such application nor any other ground to very likely face a refusal. Yet, most of them are in need of small cash infusion to get going till the next paycheck. Here is where the stores around the mall come into play.

In the light of recent changes in regulations and new steps that the Bureau have already and is going yet to take it is all these people who are likely to suffer most. This is a question that most payday loan industry opponents are unable to answer – where is the alternative to this particular small cash loan product? As a matter of fact, there is none at the moment.

All those borrowers in Ohio as well as other states with the same situation are likely to appear in a much worse conditions than they are now. It can be easily predicted with the help of Georgian example. Georgia passed the regulation in 2004 that actually made most short-term, high-interest loans illegal. This basically resulted in a growing number of bounced-check overdraft fees as well as a great number of cases of filings for bankruptcy – all due to the fact that people have never been offered any sound alternative.

Now in Ohio, where the rates of interest are the highest and the number of payday loan stores are as great as McDonald’s, the story is likely to be repeated. It is true that 14 states banned payday lending for good and that this idea is looked upon with approval by the leaders of many more.

At the present moment, however, one distinct alternation is likely to come into effect. As it is well-known that payday lenders have their own ways to check creditworthiness of a client; and that they carry very formal credit checks, if any. In accordance with the new regulations payday loan companies will have to deal with these things more seriously.

The consumer bureau’s guidelines will require that payday lenders require more inquiry than just a pay stub and ID. The regulations will require that lenders should verify a borrower’s income as well as debts, were able to evaluate expenses and make sure that all payments will be handled by a borrower. Otherwise a borrower is likely to be refused. Payday lenders will still be able to lend small cash short-term loans up to $500; however, the number of borrowers is likely to reduce as those who has debts or other problems won’t get one.

This all looks very much traditional lending, for sure. This is the reason why many people in Ohio are not exactly happy about the changes – and they are not just from the lenders’ side. Surely, the former complain about the loss of profit; consumer advocates claim that loopholes will always be found and only borrowers find themselves in dismay, yet again, as they are low-income consumers and they are definitely the ones who will feel the effects first and worst.

In accordance with the study of the Journal of Law and Economics, disappearance, or ban of such small credit products does not result in the disappearance of he demand for them. It basically only pushes most low-income individuals to go and engage into even less effective and beneficial financial schemes and accumulate worse financial problems instead. Thus, unless some alternative is offered to borrowers from low-income sector, payday loan ban and further industry restrictions will stay only halve effective.