Ohio should re-establish control of high-interest loans

Ohio should re-establish control of high-interest loans

The Ohio House passed a tough bill aimed at breaking the cycle of high-interest loans that payday lending storefronts have used to build a lucrative industry in the state in little over a decade.

The support the legislation received from even some of the most conservative legislators in Columbus was surprising. State representatives came to realize that the “let the buyer beware” attitude that drove enabling legislation in the 1990s had created an industry in which cash-strapped people were being trapped.

Now there is a move in the Senate to amend the House bill, a move that would do little more than cut the annual percentage rate of payday loans from 391 percent a year to 367 percent.

Instead of being charged $15 for every $100 borrowed for a period of two weeks, the borrowers would be charged the annual interest rate contained in the House bill — 28 percent — and an additional $13 fee on every $100.

Payday loans are a relatively recent development (or phenomenon or industry — whatever you choose to call it). They are a product of a laissez fair attitude that is supposed to be viewed as an enlightened recognition that we should all be free to make our own economic decisions, free to succeed or fail on our own. The House bill is more in keeping with a societal prejudice against usury that predates such enlightenment by a couple of thousand years.

It will be interesting to watch the payday loan industry’s lobbyists and the collection of religious activists and advocates for the poor battle for the votes that will be needed in the Senate to defeat or uphold the strong bill that the House approved and that Gov. Ted Strickland was prepared to sign.

Not an easy change

Would passage of the House bill carry some pain for the state? Yes. Payday loan shops that have sprung up by the hundreds in recent years will close. Without interest and fees exceeding an annual rate of 300 percent, short-term loans simply aren’t profitable. People who have fallen into a cycle of making ends meet by resorting to exorbitantly expensive small, short-term loans will have to find another way.

In the process, it is likely that many will default on some of their obligations. Some, as payday industry advocates like to point out, will bounce checks or have to pay utility reconnection fees that are actually higher than payday loan rates.

But about a quarter of the states in the United States — Pennsylvania among them — get by with prohibitions against the high rates and fees of payday loans.

Federal law prohibits charging members of the armed services more than 36 percent interest. If Congress determined that the nation’s soldiers, sailors and Marines needed legislative protection against predatory lenders, it is not unreasonable for Ohio to do the same for its citizens.

It’s easy to say government should stay out of people’s lives.

Yet, we expect government to play a role in making sure that the doctors we go to are certified and that our hospitals are safe. We expect government to inspect restaurants for cleanliness.

The middle class certainly expects government to protect it against run-away natural gas or electricity bills, yet as many in the middle class are perfectly willing to let the working poor be drawn into a cycle of high-interest, short-term loans that will be just as damaging to them as high energy bills are to others.

If payday loans were truly rare events in the lives of payday lending customers, that would be one thing. The idea that all those storefronts — there are about 80 in Mahoning and Trumbull counties — are just lending the occasional helping hand is a fiction. Far too many people go from shop to shop spending more and more in interest and handling charges, getting less and less value for their money. Some payday shops even encourage such behavior with incentives: borrow eight times and your ninth loan is free.

In the long run, these high-cost loans take a toll on society that Ohio’s legislators — in both the House and the Senate — should recognize and act upon.