Election results in Ohio, Arizona spell trouble for credit needy consumers

November 10, 2008

Voters in Arizona and Ohio overwhelmingly voted to significantly reduce, if not eliminate altogether, consumer access to short-term, small dollar loans. The rejection of the Arizona ballot initiative means that the industry exemption of the state’s 36 percent rate cap on loans will expire on July 1, 2010. The Ohio measure reaffirms a state law enacted earlier in the year which caps the APR at 28 percent. The industry cannot operate profitably with such cap restrictions and so there is a real possibility that these products will no longer be available in these states.

Such election results may signal victories to consumer advocates such as the Center for Responsible Lending, which aggressively fought the payday advance industry in both states. But what about the thousands of consumers in these states that rely upon these products to help them meet unexpected expenses? Where are they to turn to now?

Eliminating a product, and the industry that efficiently and cost-effectively delivered that product, in no way reduces the demand for it, it simply forces consumers to pursue other, more costly alternatives. Banks and credit unions are no doubt thrilled with the election results in Arizona and Ohio. Eliminating payday advance loans means less competition. Now, more consumers will bounce checks and incur NSF fees. That’s good for them and bad for the people who need access to short-term credit.

Government needs to create a business environment where there is more competition, not less. This will help ensure the most cost effective delivery of the products and services consumers need. The actions in Arizona and Ohio were a step backwards.