COLUMBUS – Legislation restricting payday-lending practice was passed in Ohio more than seven years ago, but some policy experts say the industry still needs to be reined in.
The Ohio Short-Term Loan Act was passed in 2008, but Kalitha Williams, policy liaison with Policy Matters Ohio, says the Ohio Supreme Court upheld a loophole in the law last year that allows payday lenders to operate outside the law’s limits. She says some operations are charging interest rates as high as 600 percent that create a cycle of debt.
“The triple-digit interest rates and the balloon payments that are due, families just cannot afford to reasonably pay back these loans in the short time period that they have,” says Williams. “They end up being stuck and in debt for several months.”
The Consumer Financial Protection Bureau is expected to release a formal proposal this fall to better regulate the payday lending industry.
An initial proposal includes regulations on the length of loans, how long a person can be in debt and the manner in which lenders access payments from the borrower. Ohio is third in the nation for the number of consumer complaints about payday loans to the CFPB.
The CFPB cannot regulate interest rates, so Williams says state lawmakers need to look at revamping the Ohio Short-Term Loan Act.
“Even with strong federal action, there’s still work to be done in the Ohio Legislature to get interest rates under control,” she says. “Ohio payday-loan interest rates are just really through the roof.”
Williams adds those stuck in a payday-lending cycle need to file a complaint with the CFBP so policymakers can get a full picture of the impact of the industry’s practices.
“The industry has been telling a story that they are providing this tremendous product for the community and that it’s a real resource, but we need people to tell their stories about how they’re struggling to pay these loans back,” she says.
Payday lenders contend they are offering a one-time financial quick fix for those in a bind, but Williams says a payday loan takes one-third of the borrower’s paycheck, leaving little left to live on.