NOW that the Ohio House has - at long last - taken steps to rein in legalized loan-sharking, state senators should ignore pressure and protests from those who profiteer from the poor and act quickly to endorse payday-lending restrictions.
House Bill 545, passed by a bipartisan 68-26 vote, would cap annual interest on payday loans at 28 percent. Currently, interest and fees can run as high as an annual rate of 391 percent. The legislation also would establish a minimum 31-day loan period, limit customers to four loans in 12 months, and prohibit loan-initiation fees.
About 2,500 supporters of the Ohio companies that feed off financial misfortune by charging sky-high interest rates for short-term loans rallied on the Statehouse lawn last Tuesday in an attempt to pressure the state Senate to reject House Bill 545.
At the same time, one of their opponents, the Ohio Coalition for Responsible Lending, reported that payday lenders are pushing an amendment that would keep the 28 percent cap but allow fees of up to $13 per $100 borrowed, effectively pushing the interest rate back up to 367 percent on a $300 loan.
Payday industry backers claim the interest-rate cap would put Ohio's 1,600 stores out of business and 6,000 Ohioans out of work. To that we say good riddance. The state, as well as the people suckered into using their services, will be better off.
It is no accident that at a time when most Ohio businesses and many of its residents are hurting, cash-advance outfits are thriving. As we noted a year ago, the watchdog groups Policy Matters Ohio and Housing Research and Advocacy Center reported that check-cashing and payday-loan outlets have been growing like a plague in Ohio for a decade, and they now outnumber the three most-popular fast-food restaurants combined.
These parasites line their pockets off people caught in the economic downturn. The worse the economy, the better they do, especially among those living paycheck to paycheck. Borrowers who can't repay their loan in the short repayment period - typically two weeks - have to roll the loan over, taking out a second loan to pay the first loan, interest, and fees. That puts them deeper in debt, making it more likely that they'll have to repeat the cycle in another two weeks.
It took one Illinois woman two years to extract herself from that cycle, and by that time she had paid more than $10,000 in interest and nearly ended up in jail - all over a $600 initial loan. Perhaps that's why there have been injunctions against these practices since biblical times, when charging exorbitant interest was considered sinful.
Almost exactly a year ago, we said that if ever there was a place where it was appropriate for government to step in to protect Ohioans from predators, this was it. Senators now have the chance to stand up for the little guy, overturning the tables of the money lenders and putting them on notice that it will not tolerate usury no matter what name it goes by.