Ohio Payday Lender Interest Rate Cap, Issue 5 (2008)

Ohio Payday Lender Interest Rate Cap, Issue 5 was a referendum on the November 4, 2008 ballot in Ohio. The question it asked voters was whether they want to approve Section 3 of Ohio House Bill 545 that capped the Ohio payday loan industry's interest rate at 28%. The interest rate cap prior to the passage of HB 545 was 391% ($15 per $100 on a two-week loan).

Election results

Issue 5
Result		Votes	Percentage
a Yes		3,263,345	63.63%
No		1,864,941	36.37%

Election results via: Ohio Secretary of State 2008 Election Results

Background

HB 545 was approved by state lawmakers and the governor in late spring. Opponents of the new restrictions (mostly the payday lending industry) quickly sprang into action to try to overturn it using Ohio's veto referendum process.

The payday lending industry is an $85 billion industry that provides short-term loans, which are usually secured with a check postdated to the borrower's next payday. The interest rate in the absence of regulation has typically worked out to an average of $15 per $100 borrowed on a two-week loan. The high interest rates are what has led to legislative attempts to cap those rates. In fifteen states, the practice is now illegal.

• A "yes" vote on Issue 5 means the voter wants tighter regulations on payday lenders.
• A "no" vote means the voter wants payday loan stores in the state to operate as they do currently.

Specific provisions

The measure enacted the following provision:

• Approved HB 545, capping the interest rate for Ohio's Payday Loan industry at 28%

Supporters of repealing HB 545

Reject House Bill 545 and Ohioans for Financial Freedom are the names of groups supporting repeal of HB 545; these groups are mostly composed of those in the payday loan business. These two organizations and numerous others that are not associated with the payday lending industry (below) urge a no vote on Issue 5.

A letter from one payday loan operator to the people of Ohio surfaced quickly after the interest rate cap was passed to give people a different view of an industry that by some is considered cruel and seen as taking advantage of their customers:

"Some [customers] are shocked, some are mad and some are upset because not only do they depend on us, but they also have formed a great friendship with my employees and me. Oh, yes, did I also mention that I recently gave money to three individuals, out of my pocket, because they needed a little to hold them over until payday? Yes, we payday lenders really do such things. My customers will have nowhere to go unless our legislators are going to make these short-term loans."

Organizations that supported repealing HB 545 include: A full list can be found at http://ohioans4financialfreedom.com/endorsements/ A partial list:

• Call & Post, Ohio’s Largest African American Newspaper
• CORE (Congress of Racial Equality)
• C.O.A.S.T.(Coalition Opposed to Additional Spending and Taxes)
• The Ohio Chamber of Commerce
• The Ohio Grocers’ Association
• The Ohio Christian Alliance
• The National Taxpayers Union (NTU)

Arguments for a "no" vote

Notable arguments that were made against HB 545 included:

• Issue #5 asks voters to approve a law that effectively puts payday lending services and their employees out of business in Ohio by making it unprofitable to offer these loans. If payday loans are driven out of existence, there could be additional political pressure to boost government assistance programs when Ohioans can no longer help themselves because the most common - and often only – method to help cover unplanned expenses has been eliminated.
• It limits a particular consumer loan option to four transactions per annum.
• It creates a state-wide database of loan transactions, including recipient name, address, and the amount of all small, short-term loans taken out.
• The opposition to 545 is also supported by the organization C.O.A.S.T.(Coalition Opposed to Additional Spending and Taxes) C.O.A.S.T states, "This weird law takes state government to a new level of creepy interference with our lives." When a borrower makes two such transactions in 90 days, they are forced into state-mandated education program imposing value perspectives of the government. The consumer must then pay $250 for the privilege of submitting to that state re-education program.
• The Ohio Chamber of Commence says the new law, House Bill 545, imposes overly broad regulations that are "not the way to revitalize Ohio’s economy." "This new law, if not reined in by Ohio voters, will drive an entire industry and 6,000 good-paying jobs out of our state." "As we strive to turn around our economy we must allow the free market to meet consumer demands and facilitate the creation of much needed jobs".
• The Ohio Grocer's Association says, "If payday lending businesses cease to exist in Ohio, which is likely if H.B. 545 is enacted, OGA’s members could be hurt through an increased number of bounced checks, fraudulent checks and even theft."
• The National Taxpayers Union comments "If payday loans are driven out of existence, there could be additional political pressure to boost government assistance programs when Ohioans can no longer help themselves because the most common – and often only – method to help cover unplanned expenses has been eliminated."
• Niger Innis, the National Spokesperson, for CORE (Congress of Racial Equality) told the Ohio Senate Committee that he found it difficult to accept that a single mother would be banned from getting a payday loan for gasoline, but it was acceptable for that same mother to gamble $200 at a new Ohio Casino. Mr. Innis also spoke about the increase of illegal loan shark activity, in Georgia, since the payday loans were banned in the state.

Donors to the "no" side

$19 million was spent by payday lending companies on Issue 5.,

As the campaign neared it end, financial newspapers reported that Advance America, one of the payday lenders that would be affected by the measure, stands to lose $42 milllion if forced to close its centers in Ohio.

Opposition to repeal of HB 545

Those urging a yes vote on Issue 5 (to retain HB 545) included Rep. Christopher R. Widener, R-Springfield, the Ohio Association of Community Action Agencies, Michael Coleman (mayor of Columbus) and the Ohio Association of Second Harvest Foodbanks.

Arguments for a "yes" vote

• Rep. Christopher R. Widener, R-Springfield supported HB 545, saying "I designed House Bill 545 to protect Ohioans from a dangerous product that has been sold at an egregious price. Sadly, the REJECT House Bill 545 Committee would prefer to prey on Ohio consumers than agree to the terms of the new legislation."
• It caps the interest rate at 28%.
• It helps break the cycle of debt.
• It gives borrowers more time to pay back loans.
• It does not mean an end to 6,000 jobs.

Newspaper endorsements for a "yes" vote

The Akron Beacon Journal was in favor of a yes vote, saying, "It will ensure that borrowers don't fall victim to the slick business model that is payday lending — dependent on repeated borrowing, one loan leading to another to pay off the previous one. Vote yes on Issue 5."

See also: Endorsements of Ohio ballot measures

Text of measure

Due to winning a recent battle over the ballot language (see "A Victory" below), the referendum that was presented to voters on the November ballot contained no mention of a 391 percent interest rate. Instead, it told voters that if they reject a portion of the law restricting the industry, payday lenders would be able to charge rates and fees that "substantially exceed" a 28 percent annual rate. The 28 percent is the cap placed in the law approved this year by the Legislature.

Path to the ballot

After a long and meandering path to the ballot, Ohio Issue 5 was formally certified for the Ohio ballot on October 23. Proponents needed 241,365 signatures on the measure to qualify it for the ballot; the initial turn-in date for the signatures was September 1, 2008. Ohio allows more time if the initial signatures turned in are found to be insufficient; this turned out to be necessary for Issue 5.

400,103 signatures submitted in August

On August 31, proponents turned in 400,103 signatures. The validity of this first batch was 48%.

After problems with some of the signatures were identified, Ohio Secretary of State Jennifer Brunner held a hearing to determine whether the payday lending referendum should be kept off of the Nov. 4 ballot due to alleged illegal practices by a company hired to gather signatures for the measure. More details below in the legal battles section.

Signature shortfall

Payday lenders turned in about 422,000 signatures and need 241,365, which means they needed about a 57 percent validity rate to qualify for the ballot. Ohio's largest counties reported to state elections officials rates of validity on payday lending petitions ranging from a meager 38 percent in Montgomery County to 58 percent in Mahoning County. In Cuyahoga County, election officials said just under 50 percent of the signatures were valid.

Signatures thrown out

About 13,000 signatures collected by California-based Arno Political Consultants on behalf of payday lenders will be tossed out, because the company’s supervisors failed to file the proper paperwork.

The tossed names, in addition to an already high invalidation rate of signatures collected by other companies, including the Ohio Petition Company, means the payday lenders referendum effort is expected to initially fall short of the 241,366 names needed to qualify for the November ballot.

Circulators are currently using the 10-day window to gather the additional signatures they will need to still qualify the measure.,,

210,822 signatures submitted from the 10 day extension

610,925 signatures were submitted in August and October combined. This brings the total of valid signatures to 279,174. The overall validity was certified at just over 47%.

The extra 10 day extension put the initiative on the ballot. Another additional 210,822 signatures were collected and submitted in that week and a half.

If an initiative or referendum does not have a sufficient amount of signatures in Ohio, the SOS allows an additional 10 days to gather signatures.

Lawsuit over ballot title

The original ballot language was rejected by Ohio Attorney General Nancy H. Rogers. The proponents then won a lawsuit against state officials over the language.

A Victory

Payday lenders won an argument with the Ohio Ballot Board that they couldn't win with the Legislature — that payday loans shouldn't be described using the high annual percentage rate that has come to define the industry.

The panel that decides how ballot issues are worded agreed it would be misleading to tell voters that payday lenders would be able to charge rates and fees equivalent to 391 percent annually if part of a new law is repealed. The omission of the high annual rate, which the federal government recognizes, was a significant victory for payday lenders in their ongoing attempt to fight the enactment of one of the strictest payday lender laws in the nation.

Secretary of State under fire

Secretary of State Jennifer Brunner was accused of siding with the payday lenders by allowing them to have the ballot language they wanted.

Ohio newspaper The Plain Dealer reported on their editorial page that Brunner said Ohio law obliges her to play things down the middle, and that Issue 5's ballot language includes words the payday lenders don't like. She added that she wanted to avoid a court fight over wording that could derail election preparations.

Payday lending in other states

Proposition 200, a measure to allow payday lending to continue in Arizona, is on that state's November ballot. In Ohio and Arizona together, the payday-lending branches outnumber Starbucks and McDonald's outlets combined.

See also

• Endorsements of Ohio ballot measures
• List of Ohio ballot measures
• 2008 ballot measures

External links

• More information, plus arguments for and against this measure from The Ohio Ballot Board
  • Ballot language for Issue #5
• Ohioans for Financial Freedom
• Payday Pundit, a news blog that covers the Ohio referendum from a pro-lending perspective.
• Anti-House Bill 545 Group Gathering Petition Signatures, Moue Magazine, June 10, 2008
• ColumbiaDispatch.com: "Payday-loan supporters must recraft petition", The Columbia Dispatch, June 20, 2008
• Blog.Cleveland.com: "Payday lenders want interest-rate cap on ballot", Cleveland.com Politics Blog, June 4, 2008
• Cleveland.com: "Payday lenders plan petitions on interest-rate cap", The Plain Dealer, June 5, 2008
• Dispatch.com: "Payday lenders can try ballot issue", The Columbus Dispatch, July 11, 2008
• PaydayPundit.org: "Ohio payday lending lawsuit to be heard by appeals court on Aug. 7th", August 4, 2008
• BizJournals: "Payday lending group unveils TV ad", Columbus Business First, August 8, 2008
• DaytonDailyNews.com: "Payday lending: Opposing sides will fight over ballot wording", August 11, 2008
• The Plain Dealer: "Ohio payday lenders win the ballot word game", August 24, 2008
• News Democrat: "Payday lending in Ohio threatened: Mixed views about issues arise", September 8, 2008</ref>

Additional reading

• For Profit vs. For People
• Casinos, clean Ohio top list of state issues
• Pastors oppose two Ohio ballot issues
• Ohio payday lenders hope dimwits turn out on election day
• Decision 2008: Issue 5, payday lending
• Snapshot of the economic crisis from Ohio
• No on 6, Yes on 5, Toledo Blade
• Ballot issues inspire closer look at strategies
• Lenders need 'no' on Issue 5 to strike paydirt
• Payday lenders spent heavy and lost on Ohio ballot

References

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Additional information about ballot litigation in 2008