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Do IT this week: Layering
Payday lending loses despite overspending
By Dennis J. Willard
Beacon Journal staff writer
Published on Sunday, Nov 09, 2008
COLUMBUS: It is the ultimate election irony.
An industry that attempts to sucker voters into repealing a law and ordinary people into a cycle of debt is taken itself for a minimum of $15 million — and it's much, much more — in a failed effort to circumvent the Ohio legislature with one of the most devious campaigns in state history.
Of course, this is the story of the payday-lending industry in Ohio, aided and abetted by its national brethren, seduced by a Columbus crowd of campaign consultants, advertising gurus, lawyers and public relations people to the tune of about $3 million a month.
Can't you just see it? Payday lenders writing checks, fat checks, to a bevy of so-called experts who pat them on the back, tell them how right they are and convince them that if they only spend the big bucks, they can win.
Millions are spent to hire people to circulate petitions and gather signatures to put the issue on the statewide ballot. Millions more are spent to mount and sustain the campaign. Consultants are consulted, pollsters queried, commercials shot, airtime purchased, mailers printed and posted, lawyers retained.
Their opponents call payday lenders legalized loan sharks, in part because of the usurious rates they charge for short-term, often revolving, loans.
Since the '90s, payday lenders have been allowed to charge an APR (annualized percentage rate) of 391 percent on loans to cash-strapped people who often have no place else to turn.
The legislature, pressured in large part by church leaders and a social network that works on behalf of impoverished Ohioans, clamped down on the payday-lending industry and reduced the allowable APR to 28 percent.
Payday lenders are used to handing over cash and then waiting a short time for a sweet return on their investment.
Not this time.
Voters, by 64 percent to 36 percent, defeated the payday lenders. Issue 5 required a yes vote to foil the plan. It was confusing and supposedly played into the payday lenders' hands, but Ohioans proved they weren't the suckers on this one.
Payday-lending opponents spent less than $500,000 compared to $15 million by the payday-lending Political Action Committee, which was named the Reject House Bill 545 Committee after the legislation that squeezed the profit margin.
The group mounting the campaign called itself Ohioans for Financial Freedom.
It ran commercials designed to frighten voters into believing their most private personal information was at risk, their freedom to make their own financial choices threatened and government was going to destroy between 6,000 and 10,000 jobs.
Information about payday lending or 391 percent APR in the ads? Good luck. Instead, viewers got to see a nearly nude, extremely pale guy run around the screen looking like a
plucked duck.
This was the thrust of a $15 million campaign and, keep in mind, that number will grow because the total won't be known until post-election campaign reports are filed on Dec. 12.
Like Andy Garcia's casino-owning character Terry Benedict in Ocean's 11, the payday-lending industry really didn't know what hit it, or more specifically, its checkbooks, until Tuesday, when the polls closed and any insider predictions of victory vanished.
So who were the big winners in this gambit?
Well, Fleishman-Hilliard Public Relations was paid $35,000 a month from June through October, or $175,000. Fleishman employee Kim Norris was the campaign's spokeswoman. Her old boss, former Attorney General Jim Petro, opposed the payday-lending industry on the issue.
Midwest Communications & Media was paid $6.9 million for ''media,'' according to campaign spending reports filed with Ohio Secretary of State Jennifer Brunner's office.
Neil Clark is executive vice-president of Midwest. He is one of the founders of State Street Consultants LLC, a lobbying firm, that was paid $50,000 for consulting by the payday-lending PAC for the campaign.
The Strategic Public Partners Group Inc. was paid $934,000 for grass-roots efforts. Tom Whatman, former Ohio Republican Party executive director, is the group's chief executive. Current Ohio GOP Chairman Bob Bennett has been hired by Whatman in the past as a consultant.
Targeting Direct Inc. was paid $1.7 million for design, printing and mailings. The company is based in Walnut Creek, Calif., near Oakland, and has been a corporation, according to the secretary of state's office there, only since July 31.
The Strategy Group for Media Inc., founded by Rex Elsass, was paid almost $210,000 for production. Elsass is a former Ohio Republican Party employee who was involved in the infamous attack ad against former Ohio Supreme Court Justice Alice Robie Resnick, in which a blind-folded statuette takes a peek as trial lawyers toss money onto her scales.
For polling, the PAC went to a Democratic firm, the Mellman Group, paying $122,000 to take the pulse of Ohioans and conduct focus groups.
What did the polling tell the payday lenders behind the campaign? We'll probably never know, but considering the money spent right up until the precinct voting places closed, someone, somewhere, must have thought they had a winner on their hands.
Suckers don't spend millions unless they think there's a bigger payoff. Just ask Doyle Lonnegan, the character played by Robert Shaw in The Sting.
''Ya falla.''
Dennis J. Willard can be reached at 614-224-1613 or dwillard@thebeaconjournal.com.
COLUMBUS: It is the ultimate election irony.
Get the full article here.
Comments
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Posted 09:19 AM, 11/09/2008
While it is true that Pay Day Lending is legalized loan sharking the key here is that is is legal. If my math is correct the limit of 28% interest will not allow the industry to survive unless they add a substantial brokarage fee on top of the interest rate. Maximum $500 loan at 28% for one month will yeild a profit of $11.67 which will not cover the cost of paper work let alone basic overhead. I do not know of any business that can survive on 28% gross profit.
Akron, OH
Posted 09:23 AM, 11/09/2008
You may be right Jack, but then so be it. They sucked me in last year and I ended up getting one to pay another. It was a vicious cycle that tore my finances up. In all I had 5 and I'm finally starting to get them paid off. Good riddens to them dumb places.
Kent, OH
Posted 10:04 AM, 11/09/2008
You are right in that is WAS legal. That's why legislation was passed to restrict it. Now if we could only get rid of all those "games of skill" houses as well...
akron, oh
Posted 12:20 PM, 11/09/2008
Well, if they do close, their will be noting left on Romig Road except Arthur Treachers.
Posted 10:01 PM, 11/09/2008
It is not a 28% gross profit, it is a 28% APR. And while I don't know the industry average gross profit, Advance America had a 22% GM in the 2nd quarter of 2008.
The bottom line is the industry needs to adapt their risk modeling to lend to those with poor credit (and high returns), but with high likelihood of repayment. Plus, a loan of a few weeks faces much less risk than a loan over several years, so a reasonable amount of business acumen can keep these places in operation. Sure, they won't make as much as when they were a loan factory to anyone with a pulse, but the lenders who can figure things out can survive.
Posted 09:59 AM, 11/10/2008
I'm glad Ohio voters saw through the lies and deceptive advertisements of the payday lending industry and voted overwhelmingly to pass issue 5! This is a very positive development for Ohio's families, particularly those who were caught in the never ending cycle of payday lending debt. Ohioans realized that payday lending is a defective and predatory product designed to trap people in debt. Voters strongly repudiated over a decade of predatory payday lending! This is a great victory for Ohio's consumers!
