At least 110 Payday Loans Outlets Closing in Ohio

[Nov 23, 2008.]

 

The next three weeks will see the closure of a further 32 payday loans outlets in Ohio with the loss of another 45 jobs. The announcement, from Check Into Cash, follows the unveilings of similar closure programs by Cash America and Check ‘n Go, and brings the total number of payday loans stores to be shut in the state--just by these three large lenders--to 110.

All these closures are a response to Ohio's Issue 5. By supporting this proposition, voters chose to limit APRs (annual percentage rates) for payday loans to 28 percent.

However, the Boston Globe reports that some lenders are looking to develop alternative revenue streams by building business in other areas such as gold buying and pawn broking. They may also be looking for ways to continue offering products that are similar to payday loans but that conform to legislation such as the Ohio Mortgage Loan Act.

Ohio voters were clearly persuaded by anti-payday loan campaigners. However, some authoritative commentators disagree.

The Federal Reserve Bank of New York published a staff report last year (and updated it this) that says: "Payday loans are widely condemned as a 'predatory debt trap'. We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005."

The report continues: "Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same."

It concludes: "This negative correlation--reduced payday credit supply, increased credit problems--contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check 'protection' sold by credit unions and banks or loans from pawnshops."

 

About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.