By Phillip Lee
Tough fights with governmental bodies are nothing new for payday lenders, but lately it seems that the industry has been facing more than its fair share of struggles with all levels and branches of government.
The spotlight has shifted recently from the states, which were long the central battleground, to the federal level. Serious threats of a rate cap that could put payday lending as we know it out of business, not to mention the specter of a Consumer Financial Protection Agency that would cover the industry with little likelihood of understanding it, have drawn much attention — and rightly so.
But that doesn’t mean all is quiet on the state fronts, and payday lenders ignore that area at their peril.
Things seem to be stirring again in the contentious state of Ohio, for example, where payday lenders took a brutal hit in a 2008 referendum and subsequent legislation.
Policy Matters Ohio, which describes itself as a non-profit policy research organization, released a study in late September that garnered substantial attention from media in the Buckeye State. It claimed that “payday lenders in Ohio are deliberately circumventing the new Ohio Short-Term Loan Act” and charging triple-digit interest rates.
The report comes as the state house of representatives considers legislation that would amend the law that was so recently passed.
The bill would cap loans under $1,000 at a 28 percent annual rate and outlaw a variety of fees, including ones for check cashing. A Policy Matters Ohio executive has testified in support of the bill.
Honey, Not Vinegar
But open warfare isn’t the only alternative. While payday-loan opponents in Ohio clearly are backing a scorched-earth policy, in other states the situation hasn’t yet hardened into such a face-off.
For instance, things are looking more hopeful in Minnesota. Payday lenders and their critics in the North Star State may not be interlocking arms and singing “Kumbaya,” but they’re doing their best to get along.
According to Brad Rixman, owner of Payday America and Pawn America, Minnesota payday lenders, the industry worked with its opponents and legislators to hammer out a bill that satisfied both sides.
The legislation followed the demise of a much more onerous bill, which sank while it was still in committee.
“The original bill allowed for two transactions in a six-month period at an interest rate which was lower than what we are able to charge today. Then there was a limit on how many transactions a customer could use in a year,” Rixmann says.
After the death of the bill, the industry decided to help put together more reasonable legislation.
“We could’ve let it lie, but I would rather work with the other side in the spirit of, ‘We don’t have anything to hide,'” Rixmann says.
The idea was to share information with industry opponents. “We said to them, ‘Look, we disagree about what you think the customer usage is here in Minnesota. It’s a lot different than it is in other states and we would be happy to share that information with you,'” Rixmann says.
The industry agreed to make reporting that information part of the regulatory legislation.
The measure, which deals with reporting and transparency by payday lenders, was passed by the Minnesota legislature in the spring and signed into law by Gov. Tim Pawlenty in May.
The bill, which took effect in August, is geared to “Providing regulation for consumer short-term (pay day) loan lending, specifying prohibited practices, requiring short term lenders to file annual reports with commissioner of commerce, specifying jurisdiction and penalties for violation, authorizing private right of action, requiring attorney general enforcement, specifying cumulative remedies; including short term loan report information in annual lender filing; requiring applicable industrial loan and thrift companies to issue reports relating to short term loan lending.”
Rixmann admits that the industry took a chance when it agreed to back legislation. While he really didn’t believe that his opponents would try to sneak any negative restrictions into the bill, Rixmann was aware of the possibility.
“We’re talking about legislation, so things can happen,” he says.
But the payday loan executive says strong lines of communication with industry opponents helped avoid any misunderstandings.
“I think we had very good communication,” he says. “We would sit down and meet with the other side over coffee on several different occasions. Everything was upfront.”
Each side understood the other’s position. “We had many discussions and we agreed to disagree on some things and agree to agree on others. And what we agreed to agree upon was what was introduced in the legislation.”
Establishing mutual trust and communication may help avoid all-out war in the future. It keeps legislators happy, too, since they can keep two groups of constituents content. Rixmann points out that many state legislators were interested in getting a bill passed.
“This legislation is reflective of what can be accomplished when both sides of a given issue and both sides of the aisle opt to collaborate in good faith,” says Senate Judiciary Chair Mee Moua in a published report, calling it an “open-minded approach to compromise.”
During the process of hammering out the bill, Rixmann did a lot of hard work at the state capitol, walking the halls and talking with committee members and legislators. But he stresses that payday lenders also need to go out into the community.
“It’s more than just being able to go and talk to legislators,” Rixmann says. “It’s more than offering political campaign contributions. It is doing something in the community and for the community at the same time. You have to be involved. You can’t just cut checks. You actually have to do things.
“We have a lot of community organizations that we work with. One is the Boys and Girls Club of Minneapolis and St. Paul,” Rixmann says.
“We are opening up our third kitchen. We feed inner city kids, whether they have to be at the club or just want to be at the club, five nights a week, 52 weeks a year. And we have found other corporate sponsors like General Mills, who provide lunches. You have to be involved.”
Rixmann adds that it’s equally vital to be part of the business community and to let it know that payday lenders provide a much-needed service.
“You’ve got to be involved in your Chamber of Commerce,” he stresses. “We are members of every Chamber of Commerce that we can get to easily in Minnesota, North and South Dakota and Wisconsin. We go out and meet with other business community members.
“You’ve got to let the other members of the business community know who you are what you do.”