Payday Loans, 391% Interest, and Issue 5

I've concluded that I'll vote "yes" on Issue 5.

Like so many of these statewide ballot issues, this one is confusing, especially if all you look at are advertising messages. That's because virtually all the advertising has come from one side: the payday loan industry, which obviously has a stake in seeing this issue go down.

Issue 5 is a referendum on a provision of a state law (HB 545) that passed this spring with bipartisan support, capping the interest rates that payday lenders can charge. The 391% figure commonly cited by opponents reflects the most common way that these loans work: a two-week, $100 loan with a fee of $15. The payday loan industry worked hard and successfully to keep mention of the 391% figure out of the ballot language.

Once again, the language of this issue is confusing. A "yes" vote on the ballot is necessary to uphold the law. A "no" vote removes that portion of the law and permits the high-interest payday loans to continue.

Almost the only advertising you'll see on TV consists of messages opposing Issue 5. That's because the payday loan industry is the party that will lose money if the issue passes, so they spent plenty to get it on the ballot and they've invested heavily in encouraging people to vote against keeping the law. You can see a pretty good ad at
http://www.youtube.com/watch?v=dtStucEk6zo.

One of the most disturbing things about this campaign is the scare tactic in which opponents talk about the vast database of information that the state will supposedly have to develop in order to enforce HB 545. Enforcement of any law is pretty much impossible without a mechanism to monitor compliance; the same argument could be made regarding the enforcement of virtually any regulation. I don't see anything special about this one, but this appeal probably works with voters who instinctively oppose all regulation.

All that said, there's a legitimate argument to be made for a "no" vote: that banning high-interest payday loans removes a financial option that people should be able to choose for themselves. In general, I agree that the principle of caveat emptor should rule the marketplace. But taken to extreme, that principle would abolish virtually all consumer legislation, and experience suggests that people need some protections. The big question, I guess, is whether this provision of HB 545 is a protection that deserves to be repealed. I'm pretty skeptical of the wisdom of the present General Assembly, but on this issue I'm inclined to side with the legislators and not with the industry being regulated.

A website called "ballotpedia" provides some coverage of this issue at http://ballotpedia.org/wiki/index.php/Ohio_Issue_5_(2008). That coverage is, unfortunately, somewhat out of date, but some of the links are helpful. Especially unfortunate is that the website details the "no" option as "supporters of repealing BH 545," confusing the yes-no question still more. A list of endorsements of a "yes" vote on Issue 5 appears at http://www.yesonissue5.com/documents/Issue%205%20Supporters.pdf.

Clams for Casinos

I'm not a gambler. I do have some money in mutual funds; I participate in a bragging-rights-only football pool; and at Christmas each year I buy a few lottery tickets to use as stocking-stuffers. If I tried gambling, I suspect that I'd enjoy it; and with my lack of willpower, within a few months I'd be living in a cardboard box under a bridge somewhere.

But I have plenty of friends who love gambling. When the spirit moves them, they head off to Windsor, Erie, Kentucky, the Argosy, or Mountaineer--anywhere but Ohio--and they take their money with them. That's part of the reason why I'll be voting for Issue 6.

The other reason is that I really dislike the deception that's being practiced by Issue 6 opponents. I don't have a moral opposition to gambling, but I can respect those who do. What I can't respect are the deceptive practices of the organized opposition, which is funded primarily by the owners of the casinos I mentioned earlier. They've exploited voter ignorance (never in short supply) with their argument that Issue 6 contains sneaky loopholes.

The reason we have to vote on Issue 6 is that it's a constitutional amendment, not a piece of legislation. The reason it needs to be a constitutional amendment is that Ohio's constitution now prohibits most gambling. The amendment would permit the passage of a state law permitting a casino, and sets some of the rules for that law.

In other words, if Issue 6 passes, it won't create a single new casino. The next political battleground would be the state legislature, and any resulting legislation would require approval of a governor who opposes gambling.

The supposed "loopholes" the opponents are quacking about are actually items left for the legislation to deal with. If the amendment were to deal with all of them, it would have to be longer than the existing state constitution.

So I'll vote for Issue 6. Partly I'll do so because I'd like to see some of that money staying in Ohio, and it would be nice to attract some high-rollers from neighboring states. I'll also be voting for Issue 6 to cast a vote against the deceptive practices of the out-of-state casino owners who are fighting against the development of any Ohio competition.

But maybe I shouldn't be so hard on them. Even if gambling isn't bringing out-of-state money into Ohio, at least this advertising campaign is.