State Lawmakers Attempt Crackdown on Payday Lending

[Apr 3, 2008.]

They're advertised as a simple way to make ends meet during tough times. However, payday loans remain one of the most controversial practices in the financial industry today.

With payday loans, borrowers take out short-term loans by placing their future paychecks as collateral. Advocates of the practice say that such loans are like any other loan, with the main difference being the short length of term involved.

However, consumer advocates say that the practice amounts to usury. They say that payday lenders charge exorbitant fees to borrowers. They also note that those most likely to take out payday loans are the working poor, who have few resources to pay them back. The default rate tends to be particularly high for such loans. Some consumer advocates even claim that payday lenders prey upon the poor.

As a result, lawmakers in Ohio want to crack down on the payday lending industry. However, critics contend that, rather than spending time dealing with payday loans, legislators should be focusing on the tax and budget problems which currently confront the state.

In the Buckeye State, payday lenders tend to assess a fee of $15 for every $100 borrowed. The interest rate amounts to 15% over a two-week period. However, Representatives Bill Batchelder and Robert Hagan say the fee is more like 391%, if calculated over a year's time. As a result, the lawmakers want to further regulate payday loans.

Under their bill, rates would be capped so that consumers would not wind up with such hefty charges. Batchelder and Hagan say that, even with the caps, businessmen can still turn a profit on payday loans.

Still, critics contend that the high interest rates are necessary because of the high overhead costs and considerable default rates. Surveys indicate that borrowers are more interested in the convenience that payday loans offer than with their interest rates.

Julie Ann Amos
April 2nd 2008

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