Ohio’s Assembly is stalled in completing new legislation regulating payday lending rates. Thomas Suddes in an editorial in the Dayton Daily News today blames Christopher Widener, a Springfield Republican, chair of the Financial Institutions, Real Estate and Securities Committee, for blocking a vote on the matter in his committee. Suddes says, “The Ohio House’s failure to pass a 36 percent APR cap is a new and disgusting low.”
I googled “Ohio payday lending” and found a web-site sponsored by “The Ohio Coalition for Responsible Lending,” that says:
Payday lenders market their loans as short-term help for people in crisis. Data reveal, however, that only 1% of payday borrowers pay off their original loan in the standard two-week cycle. In fact, loans are deliberately structured to require borrowers to continue the cycle. For example, Judy, a recently divorced mother of two, took out a $300 loan that cost $45 in fees every two weeks. This became a $690 monthly payment which took nearly two years to finally pay off. This practice is the very foundation of the payday lending business model. The number of payday lending shops has grown from 107 in 1996 to 1,562 today. Ohio now has more payday lending locations than McDonalds, Burger King and Wendy’s restaurants combined.
The cost to Ohio borrowers in fees is estimated to be over $200 million annually. As Judy’s story reveals, this original $300 loan did not help her with a short term problem as marketed, but trapped her in long-term debt. Judy’s story is typical of a payday borrower. It is estimated that there are over 368,000 payday borrowers in Ohio, each with their own distressing story.
The standard interest for Ohio’s payday loans is $15 every two weeks for every $100 borrowed. This amounts to an annual percentage rate of 391%.
Suddes reports that at the national level payday lending has been capped at 36 % in a bill backed by congressional Republicans and signed by President Bush, “Because unregulated payday lending was crushing military families with debt.” Suddes says, “Now, miracle of miracles, the U.S. Congress actually looks good compared to the Ohio’s General Assembly.”
Suddes concludes his editorial: “Payday loans are too dicey for bank regulators, too expensive for George W. Bush and break hearts in black neighborhoods. But some Ohio House members don’t have a problem with that, which is predictable — and revolting.
And it says right on the paper you sign that it is 391% APR. Duh. Don’t take out the loan if you can’t pay it back.