Limiting Access To ‘Payday Loans’

By The Intelligencer
Pointing out that Ohio legislators may be going too far in their campaign to sock it to “payday lenders” simply isn’t politically correct. After all, those offering short-term loans at interest rates sometimes as high as 391 percent are not very popular.

That makes them an easy target for politicians who know that many of their constituents slept through economics classes in school. Cracking down on a business viewed by many as little better than loan sharking is a near-certain method of making voters grateful.

But payday lenders — while victimizing some Ohioans in a vicious cycle of high-interest rate debt — do provide a service to some. They provide credit to those whose circumstances make it difficult or impossible for them to obtain bank loans or credit cards.

Eager to win plaudits for acting decisively to rein in payday lenders, members of the Ohio House of Representatives have passed a bill calling for severe limits. The measure is pending in the state Senate.

Just how severe? The House bill would place a 28 percent interest cap on short-term loans from payday lenders.

Put that into perspective: Credit card companies can and often do charge higher interest rates. And they don’t deal with shaky-credit customers of the type served by payday lenders.

Lobbyists for the payday lending industry have suggested that the Senate ought to agree to allow them to charge fees in addition to interest. That proposal has not aroused much interest.

One reason payday lenders charge high interest rates is that their customers are less credit-worthy than many other Ohioans. That means the lenders take greater risks in giving their customers money that may never be paid back. Without the incentive of interest rates at certain levels, the lenders will merely stop providing loans to some people.

We don’t expect state senators to take that into account. Again, they are more interested in pleasing voters than in enacting reasonable limits on payday lenders — perhaps capping their interest rates, but at higher levels than the 28 percent in the House bill.

If that limit becomes law, however, it undoubtedly will dry up a source of credit on which some Buckeye State residents depend. Bank on it.