Payday Loans: Regulation in a Mess

[Mar 12, 2009.]

 

Different states are experiencing wildly different outcomes after efforts to regulate payday lenders.

Short-term advance percentage rates up in Ohio

The Housing Research and Advocacy Center, a not for profit fair housing agency based in Cleveland, Ohio, reported Monday that 2008 legislation seeking to control payday lenders was proving ineffective.

The Center's report, entitled The New Face of Payday Lending in Ohio, says that since May 1, 2008, 632 licenses have been issued under Ohio's Small Loan Act and a further 653 under the state's Mortgage Loan Act. It claims that under these licenses, 'payday' lenders can now actually charge higher annual percentage rates than they could previously.

Jeffrey Dillman, executive director of the Housing Center and co-author of the report, said: "This report shows the need for further action on the part of the legislature to end high-cost lending in Ohio."

Payday Lender May Close VA Operations

Meanwhile, Forbes reports that Check 'n Go, which says that it is the second largest payday lender in the country, has stopped offering payday loans in Virginia while it considers closing all its 68 outlets in the state. More than 120 jobs are at risk. Jeff Kursman, a company spokesperson blamed the move on 2008 legislation that tightened the regulation of short-term advances in the state.

Ironically, that legislation enabled higher rates than were typically charged previously. After the Act, payday lenders could levy an annual percentage rate of only 36 percent, but they could also charge a flat fee of 20 percent of the loan's value, plus a $5 'verification fee'.

It's Not Just Percentage Rates

Check 'n Go, however, claims that another part of the new law has badly affected its business model; borrowers were given twice as long to repay their short-term advances. Kursman told Forbes that--like the big public payday lenders--the private Check 'n Go operates at about six to eight percent net revenue. He continued: "At the end of the day the question is how has it impacted us, and it has affected our ability to be profitable and that's why we're examining it,"

 

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.