Payday lending interest rates forced down in Ohio
On Monday, Ohio Governor Ted Strickland signed a law capping payday loan interest rates at 28% and limiting borrowers to 4 payday loans per year.
Previously, payday lenders would charge interest rates close to 400%. Under the new law, they will be limited to 28%, which looks more like a (bad) credit card interest rate.
The payday lenders themselves complain that this will force them to close most of their stores and cost Ohio up to 6,000 jobs. Ohio’s Republican legislators have the answer for that:
However, Republican legislative leaders said Monday that any payday lending jobs that may be lost by the bill essentially aren’t worth trying to keep.
“We want to replace jobs that are taking advantage of people with jobs that help people,” said Ohio Senate President Bill Harris, an Ashland Republican.
So where should Ohioans turn if they are stuck and really need cash?
Savings, first of all. Everyone is better off operating with cash, and everyone should be building savings, even if it starts out as a change jar. Those pennies add up faster than you might thing. Preparation is the best protection. Sock away a couple thousand dollars in savings to cover those surprise expenses.
For a true emergency for which you don’t have the money, turn to your built-in support network of family and friends. If they cannot help, try a general-purpose consumer loan. A bank may or may not be able to help, but Prosper.com is a decent alternative.
But if you cannot afford the expense in the first place, how will you pay back the loan? Never borrow if you will not be able to pay back what you borrow. There is no better way to lose friends, family, and your credit rating.
Ohio Punches Payday Lending Industry In The Face, Breaks Its Nose, And Laughs [Consumerist, where Ben Popken has a way with headlines]
Tags: interest, lending, loan, Ohio, payday, saving, Ted Strickland
Filed under: Consumer Law & Policy
How incredibly naive to tell people to “save” so they won’t need payday loans.
And getting a loan from a bank is out of the question when you have poor credit and need money in an emergency. The legislators of Ohio obviously don’t know anything about the needs of their constituents, nor do they care. They are a disgrace to our system of representative government. Ohio lawmakers should be ashamed of what they are doing to their already economically depressed state.
I am incredibly sympathetic to the many people who are so desperate they feel they have no alternative but to take out a payday loan. Such people are my clients and my friends, and I have been there myself.
But I think it is also naive not to save. Or to think that, when saving is impossible or savings run out, that a payday loan will buy anything but time and even more trouble down the road.
What will be harder to survive, not getting a loan or losing everything to collectors and bankruptcy?
When all else fails and payday loans are not an option, what can a consumer do? First, look to friends and family to help. Banks are an option for some, and Prosper.com for others. Prosper.com is not as fast as a payday loan, but it usually comes with better loan terms.
i have never tried a payday loan but i did ned money to consolidate some debt. i tried prosper and i couldnt get all of the money i needed. i wouldnt recommend it.
Payday loans are outrageous and not sufficiently regulated. The payday lenders don’t have to worry about the borrower’s welfare, they have already made a great deal of profit before the loan ever gets paid back.
We can provide something better than payday loans for our consumers. In Ohio, payday lenders have long been exempted from the state’s usury laws and have flourished. There are more than 1,600 stores in Ohio - more than McDonald’s, Wendy’s and Burger King combined, and over 300,000 Ohioans are caught in a debt trap (more than 5 of these loans per year).
Alternatives exist for individuals who need quick cash. Ohio’s credit unions offer a product called “stretch pay” which has a 18% interest rate and a longer term. The Ohio Treasurer’s office is also developing a link deposit program to help other institutions provide low interest small loans to those who need them.
The Ohio General Assembly and depository institutions should work together to develop other alternatives and provide incentives to businesses who are willing to offer loans that aren’t predatory. Payday loans at 391% are not the way to help citizens build wealth and help our economy. Instead they serve to put families further and further into debt.
The industry is in the process of collecting petition signatures to overturn House Bill 545 on the ballot through a referendum in November. Don’t let this happen - support House Bill 545!
We should be congratulating the Ohio General Assembly for taking action on this issue. In Ohio, payday lenders were the only small loan lenders exempted from the state’s 25% usury cap and have extracted hundreds of millions of dollars in fees and interest payments from consumers who don’t know what they are getting into. In Ohio, we’ve got more payday loan shops than McDonald’s, Wendy’s and Burger Kings combined and they are on every street corner in lower income neighborhoods. Let’s face it – this is an industry built upon the desperation of the poor and is exploitative! So-called “Critics” aren’t trying to take away a choice – they’re trying to protect unsuspecting consumers from making a very bad choice that will have long-term negative consequences. We need reasonable regulation of this industry and a fair playing field for small loan lenders. Ohio’s House Bill 545, which caps interest rates at 28% APR, does just that.
I used to work for one of these payday advance lenders and let me tell you, most of my customers took a $300 loan out and paid $345 back two weeks later, only to turn around and do the same thing the same day. I felt so bad for these people in this vicious cycle. A lot of these people took out 26 loans per year and at $45 a pop with NO REDUCTION IN PRINCIPAL balance equals a whopping $1170 per year in interest charges. Again that would be on a $300 loan.
So I for one congratulate lawmakers for putting a stop to this cycle. No matter what, people will need to get more creative in finding ways to stop the cycle.
The payday lobby isn’t going down without a fight! They have mounted a referendum campaign to overturn House Bill 545 and are deceiving Ohio voters: http://www.youtube.com/watch?v=zDoeXujagE4
We need to end predatory payday lending in Ohio! VOTE YES ON ISSUE 5 to lower interest rates!
http://www.yesonissue5.org