Some unknown facts on payday lending
June 19, 2008
On June 2, Ohio Gov. Ted Strickland signed House Bill 545. While some consider this bill controversial, in essence it holds payday lending institutions to the same standards regarding interest rates as traditional financial institutions.
To summarize, House Bill 545:
- Caps the interest rate for payday loans at 28 percent, reduced from the current annual interest rate of 391 percent
- Sets a $500 borrowing limit
- Restricts borrowers to four loans per year
- Extends loan terms to 31 days from 14 days
There has been a lot of discussion and letters to the editor in Muskingum County regarding how detrimental the signing of this bill will be to our community. I would like to point out some facts few members of our community know regarding payday lending.
According to the Ohio Coalition for Responsible Lending, 2,870 Muskingum County payday borrowers were trapped in a cycle of debt in 2006 - meaning they each had five or more payday loans in that year. In addition, Muskingum County borrowers paid $2,871,978 in payday loan fees in 2006.
That's $2,871,978 that was not spent on paying down credit card debt, opening a savings account, investing in a retirement plan or, more importantly, covering basic needs like food, shelter and health care.
Yes, as House Bill 545 goes into effect, some individuals may lose jobs and that is truly unfortunate. However as a community, perhaps we should focus on why individuals are turning to payday lenders and devise alternative solutions, such as better-paying jobs and low or no-fee savings accounts.
For example, the average payday loan amount is $328 with fees of approximately $49. If every individual had an emergency savings fund with a minimum of $500 in it, the funds would be available and taking out a payday loan would not be necessary.
As a community, we are already working on alternatives to payday loans. Members of the Financial Stability Partnership are studying this problem and proposed solutions. If you would like to know more about the Financial Stability Partnership visit www.unitedwayofmpm.org.
Source : http://zanesvilletimesrecorder.com
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