Bringing an end to the practice of trapping borrowers in 400 percent payday loans, the governor of Ohio promises to sign a 28 percent interest rate cap finalized by the Ohio House today, a reform that passed the State Senate last week and had already passed the Ohio House.
The measure had strong bipartisan support, including sponsorship and support by Republican leadership. A fierce coalition of consumer, religious and business groups kept the fire burning in the media and the pressure on lawmakers to do the right thing throughout the hard-fought battle.
Ohio's citizens will save $210 million per year in abusive fees, adding the state with the fourth largest number of payday loan stores to a growing list of jurisdictions that have had enough of triple-digit interest rates.
Borrowers go to payday lenders for a short-term advance of up to $800 on their paycheck, but the terms of the loan make it difficult to pay off and walk away the first time. Many find themselves trapped in a loan they can't afford to pay off for months on end. Industry-provided researchers testified that the average Ohio borrower had eleven to twelve transactions per year, so borrowers end up routinely paying back more in interest than they borrowed.
Industry lobbyists in state after state have pushed for illusory reforms that sound good, but fail to reduce the rates at which payday lenders flip borrowers into new transactions, collecting more interest with no reduction in principal.
The attorney general of Arkansas recently chased out payday lenders who were not in compliance with the 17 percent cap in that state's constitution, and New Hampshire, Oregon and the District of Columbia have passed two-digit caps in past months. This brings the total to 15 states plus DC that have freed themselves from predatory payday lending by enforcing a two-digit cap.
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