Read about a lawsuit against Fifth Third Bankâ€™s payday loan product here.
I totally endorse the portion of the lawsuit that calls the APR misleading.Â I think it is misleading.Â If you take out a loan secured against your next paycheck at $10 per hundred borrowed, and that loan is advertised or disclosed as 120% APR, then it better be a thirty day loan.Â If the loan is even a single day shorter, then the disclosure is inaccurate.Â Period.
Regrettably, the merits of this particular argument get lost in the plaintiffâ€™s zeal to obfuscate the fee vs. APR issue.Â He claims payday loans are disclosed as APRâ€™s when in fact they are fees designed to skirt usury laws.Â Â The irony is that not only are payday loans required to be disclosed with APRs under federal TILA law, but payday loan opponents like to use the â€œtriple digit APRâ€ meme to bolster their argument.Â Apparently, they have no problem playing on both sides of the fence.
My research found that Ohio has a tumultuous history regarding payday loans.Â The loans were legal and state law had a number of really solid protections, such as requiring a one-day waiting period to get a new loan after paying one off.Â It looks like the loans were killed in a highly political set of circumstances, but lenders then found other statutes under which they could legally operate.Â Â My reading of those statutes makes it very clear the fees that are permitted to be charged, and Fifth Third Bank adheres to those laws.Â So while the fees charged are legal, the issue is APR disclosure.
Thereâ€™s another strange argument in the suit.Â It proclaims that the bank has no right to charge such high fees (APRs?Â Which is it?) because the loan is more secure â€“ the bank has the right to reach into the customerâ€™s bank account and withdraw principal because the customer uses paycheck direct deposit.Â That argument has no legal merit, because the price of the loan is permitted under state law.Â The attorney instead is making a moral argument, or at best a market argument, which has no bearing under the law.