Thumbs down: Ohio rules on payday lenders falling short
In 2008, the Ohio Legislature acted to crack down on the payday loan industry by approving legislation that prohibited short-term, high-cost loans. The industry fought back, hoping to overturn the law in a referendum, but failed.
Instead of going away, however, the industry adapted and is now making short-term loans under other state laws and imposing interest rates amounting to more than 300 percent when calculated on an annual basis, according to a report by The Columbus Dispatch.
Industry spokesmen say they provide a valuable service -- that many consumers need payday lenders to deal with cash flow problems and emergencies. But consumer advocates disagree.
The federal Consumer Financial Protection Bureau in April called the lenders "debt traps." The bureau concluded that nearly half of borrowers receive more than 10 loans a year and 14 percent undertook 20 or more. The study found that three-quarters of all loan fees generated by consumers came from those with more than 10 transactions.
Some states, including West Virginia, have been successful in essentially blocking the industry by refusing to approve any enabling legislation and keeping interest-rate caps in place. Unfortunately, Ohio isn't in the same situation and didn't act to prevent the industry in the first place.
There have been attempts in the Ohio Legislature to come back to the issue and impose more restrictions, but those have failed. The payday industry has worked to keep it that way, contributing more than $465,000 to legislative campaign accounts in the last four years, according to The Columbus Dispatch.
But Ohio lawmakers shouldn't be content to let things stand as they are. The issue is worthy of revisiting and finding strategies to close the many loopholes that still allow people to get caught up in a cycle of high fees and interest rates.
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