Financial difficulties can lead many Ohio residents to take desperate measures to make ends meet. Payday loans can be enticing, because they promise fast, easy money when people in trouble need it most. However, consumer advocate groups have been warning people for years that payday loans can also become a costly, perpetual debt trap. Ohio is one of the states that allows payday lenders to do business, but consumer groups are attempting to get laws changed to protect borrowers from what they say are predatory lending practices.
According to the Dayton Daily News, the Ohio Ballot Board has given consumer advocate groups permission to collect signatures for a payday lending reform proposal to go to state vote. The proposal would call for limiting the interest and fees on short-term loans to no higher than 28 percent, as well as not allowing lenders to take more than 5 percent of their customers’ gross monthly income as part of their repayment schedule.
Why are payday loans a potential threat to consumers’ financial security? Usually, people borrow at least $100 and up to $1,500, which must be repaid within a month. By the time the payment becomes due, the borrower has other bills to pay, but after the payday loan is satisfied there is little money left for other expenses. Consumers then feel forced to borrow again, thereby paying even more in fees and interest. Habitual payday loan borrowers can end up paying above 400 percent in annual percentage rates.
While the future of payday loans in Ohio remains to be determined, consumers may protect their financial interests by being aware of their borrowing options and the pros and cons of each, as well as their options for debt relief, including bankruptcy.
