Payday Lending and the Beattys: There's Another Side to the Story
Submitted by Jeff on Thu, 04/10/2008 - 7:59am.
The Plain Dealer and the Dispatch report momentum in the General Assembly toward passing a measure that caps interest on payday loans, probably at 36% per year. Both stories attribute this development to the revelation that Otto Beatty, spouse of Ohio House Democratic Leader Joyce Beatty (D-Columbus), is doing consulting work of some kind for an Ohio-based payday lender. Mr Beatty says that the work relates to Virginia rather than Ohio, and both Beattys deny that his work has any influence on her actions in the legislature, but several lawmakers say that Beatty has been a roadblock to advancing the measure. In the absence of any other reason to do that, the implication of improper influence hangs heavy in the air.
However, there is in fact good reason to tread carefully with payday lending regulation. I agree that the Beattys should have disclosed the matter when Mr Beatty started doing the work in mid-January, in order to avoid the appearance of a conflict. However, Joyce Beatty voiced concerns about the payday lending interest cap last summer, and for good cause.
Continued after the flip.
Joyce Beatty represents a district with severely underserved neighborhoods where both banking services and employment opportunities are scarce. (My own state representative, Barbara Boyd (D-Cleveland Heights), represents such areas in East Cleveland, and she has spoken to this issue as well.) The fact is that payday lending outfits, despite their potential for abuse and their unpalatable business model, do provide some form of banking services that are accessible to people living in neighborhoods without commercial bank branches. Sometimes people do need small, temporary loans, and as a practical matter they currently have nowhere else to turn. Payday lenders also provide some jobs, and they pay rent and buy office supplies. In struggling urban areas where local commercial establishments like bars and restaurants have been dealt a double blow by the smoking ban and the elimination of the popular video games, the threat of potentially crippling another form of commercial activity is to be taken very seriously.
This is not to say that payday lenders should not be regulated, they should. I'm just pointing out that there is good reason to look at a complicated issue carefully. The steps taken should be coupled with measures to encourage banks to provide similar services in underserved neighborhoods, for example. If that cannot be done, then care should be taken that the payday lenders prediction of being driven out of business does not come true. One way or another, it is not as simple as slapping on an interest cap and calling it a day.
Smoking Ban?
"Bars and restaurants have been dealt a double blow by the smoking ban and the elimination of the popular video games"?
Really?
If, in fact (I have seen any stats on this), people are spending less money eating and drinking out I would guess that it's not because they can't smoke or play match-the-fruit at their local pub.
More than likely, it's because the economy sucks- especially in already-depressed places like East Cleveland. More than likely it's because they lost their job and the bank is in the process of taking their house.
That's what the consituents are saying
Rep. Boyd hears about it from her constituents. I'm sure you're right that the staggering economy, loss of jobs, and foreclosures all hurt business as well, but bar and restaurant owners are complaining that the smoking and video bans hurt their trade.
The fact that the economy sucks in general tends to support the point I was trying to make, i.e., that there is cause for legislators to be careful about implementing a reform that might hurt resident in underserved areas.
Respectfully disagree with most of the points
Jeff, you and Ms. Beatty mention that these establishments provide banking services that wouldn't be otherwise available, and Ms. Beatty tells the story of a woman who can't get her check cashed anywhere in the city. That may be true, but consider for a moment that check cashing is one service (I used to get my payroll check cashed at the Meijer Service Desk), and payday lending another service entirely. If check cashing is really such a necessary and underprovided service, there will exist vendors to provide it. To view it in terms of your other example, this is like opposing the tic-tac-fruit ban because some residents will have a more difficult time finding beer.
On the other hand, it is true that there exists a significant population who are desperate for money today that they may or may not be able to pay back next week, although that is currently the least of their worries. It is also true that banks are unlikely to give these people loans. What is also true, however, is that these folks may well be better off living without electricity for 5 days until payday when they can pay the bill and the reconnect fee than they would be getting caught on the treadmill that underlies the payday lending business model*.
If the service is one that does more harm than good, then arguments based on job creation are somewhat irrelevant. Pimps provide jobs.
*Illinois Power may have disagreed with me, but I have no regrets.
Wrong is just wrong
I also will have to disagree with Jeff on this one.
The rates and practices of payday lenders are just plain wrong. This is particularly true when they use the criminal justice system to collect on bad debts by charging borrowers with "passing bad checks."
A few years ago, the lobbyists for the banking industry (the ABA) wrote a banking "reform" bill which the GOP controlled Congress (with the acquiescence of FAR too many Democrats) was delighted to pass.
This monstrosity was the classic GOP version of "reform" in that it screws over consumers at every turn.
At the time, when consumer advocates protested, the ABA promised that they would voluntarily address the issue of giving low income citizens access to banking services. And to no one's great surprise, it didn't happen. The only visible change was that more banks began to offer some sort of "free" checking accounts.
But if the nearest bank branch is in the suburbs, it doesn't do inner city dwellers or poor rural citizens much good. It's basically the same problem with pharmacies and grocery stores.
The solution is not to make things worse by charging loan shark interest.
I think the perfect comparison is what predatory "no doc" home mortgages have done to our cities.
It's another example how by claiming to be "deregulating" services, the super rich benefit and everyone else loses.
Greater Of Two Evils
I have to come down on the side of HB 333, the Batchelder/Hagan bill. During the 5 weeks that the party let me be a candidate, before I was replaced by the juggernaut (no link available), I attended what was the first public committee hearing on the bill.
I was hoping to hear from outside witnesses on the subject, and from both sides as well. But given what I later learned was normal procedure for a first hearing, the committee only heard from the sponsors of the bill.
Representative Batchelder, who is as "old school" conservative as they come, gave a very compelling case for this regulation arguing that while some may say that these businesses fill a need in a certain segment of our community, the long term costs to those who get these loans is just too high.
There was a lot of discussion of the likelihood (and remember I was hearing only from the bill's sponsors) of credit unions moving in to fill a gap if payday lenders left the state entirely. Of course not everyone belongs to a credit union, but both Batchelder and Bob Hagan discussed how changes to credit union regulations could help open this sector of the banking industry to those who use payday lenders.
I don't have my 3+ pages of notes here so I can't bring up all the details on this, but I think it is very clear that too many people get caught up in this cycle. It's not a source I would often point to, but Jerid wrote an excellent post on BSB many months ago about this. It can be read here.
Before things changed, I was planning after the first of the year, to go to one of the two at my local street corner (and I live in the Worthington School District, not in some lower economic area) and take out one of these loans to see how the process worked.
I really think something has to change with this business model. I've read the right wing thinktank pieces about how it's not 391% but in fact 15%. That's voodoo math, frankly. APR is calculated one way and doesn't shift for the Buckeye Institute.
Finally, one last inexact measure of how this debate is framed is the two organized groups of people who came to see the hearings. One was a group of very ordinary citizens organized by a church group whose name I cannot right now remember. The other group were composed of dozens of men and women (mostly men) in very expensive suits, all talking on their cell phones during the hearing. Once such person was Adam Hewit, the former political director for the Ohio House Democratic Caucus who left last year to work for the industry as a lobbyist.
You could tell who was who in this hearing.