Paydayloans

Consumer advocates may be pushing for legislation that could put the state's payday lending industry out of business, but there are few guarantees that lending alternatives would emerge for cash-strapped Ohioans with poor credit. Two bills in the state House of Representatives would cap annual interest rates charged by payday lenders at 25 percent or 36 percent, a sharp drop from the 391 percent allowed under current law. That would force most of the state's nearly 1,600 payday lending shops to close, industry executives contend, eliminating an important credit option for Ohioans. Supporters of the bills say they're confident other lenders would step in to fill any void, but opponents worry eliminating payday lending - typically loaning money for just days or two weeks to cover a cash shortfall - could force borrowers to turn to more risky, less-regulated sources of credit - loan sharks or online payday lenders - or default on more bills. "I don't think that it is appropriate to take that service away without there being any other option for Ohioans to employ," Rep. Ross McGregor, R-Springfield, said in a statement. McGregor is the sponsor of House Bill 337, an industry-supported initiative that proposes other regulations, such as requiring lenders to set up extended payment plans for those who can't repay on time. Rates may be high, but research has shown banning such lenders or setting caps that drive them out of business aren't necessarily a solution, said Victor Stango, an associate professor of economics at Dartmouth College. "We haven't until the last year or so had really careful research that tells us what is the right thing to do here," he said. "But most studies have come down finding payday loans and short-term credit in general is something that helps people." In Oregon, lenders sometimes charged an annual percentage rate of more than 500 percent on short-term loans. Last year, however, state legislation capped annual rates on a $300 loan at about 156 percent. Licenses for payday lending stores in the state have since plunged 63 percent to 121. In preliminary research in Oregon, Stango found many of those who used payday lenders have become more pessimistic about their finances. Another study by the Federal Reserve Bank of New York found higher rates of bounced checks, Chapter 7 bankruptcies and complaints about debt collection practices in Georgia and North Carolina after those states banned payday lending. Ohio Rep. William Batchelder, R-Medina, sponsor of H.B. 333 which would cap rates at 36 percent, thinks consumers are hurt more by high rates allowed under a 1995 law than they would be if the lenders went away. "The irony is there was none of this payday lending before 1995 and I don't recall people starving on the street or anything," he said. Some banks, credit unions and financing companies specializing in longer-term loans with better rates will fill the gap if payday lenders are out, Batchelder said. Some banks offer unsecured loans to those who qualify. And credit cards remain the best source for small, unsecured loans, said JPMorgan Chase spokesman Jeff Lyttle. Also, 34 Ohio credit unions have banded to create a payday lending alternative, charging 18 percent on short-term loans. If payday lenders can't afford to make the loans at lower rates, it's not clear how others might do so, said Darryl Dever, a lobbyist for the industry. For instance, at current rates it takes payday lenders six repaid loans to make up for one defaulted loan, Dever said. At the lower rates, it would take more than 70 loans. Oregon considered a range of rates for its legislation, but decided on a middle ground so payday lenders would charge less but wouldn't be driven out of the state, said David Tatman, administrator for Oregon's Division of Finance and Corporate Securities.