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Payday facts and fiction

A new proposal in the House amounts to little change at all

Speaker Jon Husted promised to move payday legislation through the Ohio House within two weeks. He indicated, too, that the measure would likely include a limit on the interest rates the lenders are permitted to charge.

A little over two weeks later, there has been more activity on payday legislation than the House Financial Institutions Committee and its chairman Chris Widener, had managed the past six months. Whether the activity is moving Ohio any closer to a better loan product, curbing the predatory aspects of the industry, is not so immediately clear.

The problem is that Ohio permits the quick-cash stores to charge interest rates on small, two-week loans that amount to a 391 percent annual rate. Several studies (as well as former industry operators who testified before the House committee) have described how the high-interest, quick turnaround business model sucks consumers into a cycle of debt, leading to repeated borrowing and paying over time much more in interest charges than the amount of the original loan they took out.

One reasonable solution is to reduce the exorbitant interest rates, close the avenues for consumer exploitation and increase alternative sources for borrowers to obtain small loans at less usurious rates.

House Bill 333 attempts to achieve those major objectives with proposals to cap the interest rate at 36 percent and limit the number of loans a borrower can take out in a year. The lenders contend that lower rates would practically shut down the industry and leave Ohio consumers hard up for affordable quick loans. (It makes one wonder how residents in Pennsylvania and other states without such payday lending make available quick, short-term loans.)

State Rep. Widener, clearly no fan of a rate cap, claims the 391 percent is a ''fictitious number.'' With Husted's promise of transparency and a quick solution forcing his hand to act, Widener is offering a compromise proposal that includes many of the consumer protections and incentives for small-loan alternatives in the stalled H.B. 333.

Most telling, his compromise appears to eliminate the biggest bone of contention: the rate cap. Widener wouldn't call the charges interest at all but an origination fee, pegged at $7.50 per $50 borrowed. Under any name, it would still come out as a 391 percent annually. The transparency is blinding.

Speaker Jon Husted promised to move payday legislation through the Ohio House within two weeks. He indicated, too, that the measure would likely include a limit on the interest rates the lenders are permitted to charge.

Get the full article here.


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