New York Times Recognizes Importance of Ohio Campaign
In Sunday's New York Times, reporter Bob Driehaus writes about Ohio and Arizona, two states in the middle of major campaigns to uphold interest rate caps passed by their respective state legislatures.
"Ohio lawmakers sought last spring to aid borrowers like Ms. Minda by capping annual interest rates for payday lenders at 28 percent, a sharp reduction from 391 percent. But lenders are fighting back in a novel way, collecting enough signatures, once certified, to force a vote in November on a ballot measure that could overturn legislation that established the rate cap."
Proponents of payday lending continually suggest that the two-week loans are meant only to help financially strapped individuals in times of need and only for the short-term. However, the story told by Tracy Minda in Sunday's paper is not unique. "Nine months and 18 loans later, she was hundreds of dollars in debt and paying the lender about $120 in monthly fees from her $1,300 in wages." The average borrower in Ohio takes out 11 to 12 loans per year and according to the industry's own researchers, many borrowers end up caught in debt for 18 to 24 months.
""The business model is a debt trap," said Uriah King, a spokesman for the Center for Responsible Lending in Durham, N.C., which supports rate caps. More than 90 percent of customers are repeat borrowers, he said, and two-thirds of lenders' revenue comes from borrowers who take out a dozen loans annually." Despite evidence to the contrary, the industry continues to plead ignorance, suggesting that payday loans are meant only for emergencies.
In many ways, the Arizona and Ohio campaigns are mirror images. The payday lobby in Arizona is attempting to extend indefinitely an exemption from state law that would allow lenders to charge 400% APR interest. In Ohio, payday lenders are trying to overturn one of the nation's best consumer protection laws that caps interest rates at 28% APR and helps to eliminate the debt trap by allowing only 4 loans per customer per year. In both Ohio and Arizona, the Community Financial Services Association is the sole large donor to the payday lenders' campaign chest. In Ohio, under the disguise of Ohioans for Financial Freedom, CFSA has spent millions on television ads touting "financial freedom" and "choice."
The ads, however, don't reflect the reality of payday lending. The reality is more often than not closer to the experience described by Tracy Minda: all trap, no freedom.
You can read the New York Times article here: http://www.nytimes.com/2008/09/07/us/07payday.html?_r=1&scp=2&sq=payday%20lending&st=cse&oref=login
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