Payday lender and pawn shop operator Cash America International Inc. said Wednesday it will to close about one-third of its Ohio lending locations in the next few months, after voters in the state chose to maintain new payday loan restrictions.
Voters Tuesday approved a new payday lending law that cuts the annual percentage rate that lenders can charge to 28 percent and limits the number of loans customers can take out to four per year. It is among the strictest laws in the country. Its backers say cash advances are defective products that trap borrowers into a cycle of debt.
If the measure had been voted down, limits and caps on interest rates would have been eliminated, allowing lenders to charge rates and fees that amount to a 391 percentage annual percentage rate. Under the HB 545 bill, the fee charged on a $100 two week loan is now reduced to $1.08 (less than 10 cents a day).
"There is no way to sustain a viable store front business by offering small, short-term unsecured consumer credit at this rate," said Cash America President and Chief Executive Daniel R. Feehan, in a statement. The company said it plans to close 43 lending shops which operate under the brand Cashland, affecting about 150 jobs.
In morning trading, shares fell $1.99, or 5.8 percent, to $32.50.
Cash America plans to book $2.5 million in charges for the closings but said that won't affect its prior profit forecast, which excluded such one-time costs. Cash America at the time predicted it would rely less on payday loans. The company on Oct. 23 forecast full-year earnings between $3.07 and $3.11 per share, a tightening of its forecast from July.
Cash America said Wednesday the remaining Ohio locations will begin offering services beyond payday loans such as short-term unsecured loans governed by a different statute. Some locations also will purchase gold and operate as pawn shops.
Cash America, which had 926 locations total as of Sept. 30, also said a ballot measure failed in Arizona that would have extended a cash advance statute beyond July 2010.
Source:
Businessweek.com
