An estimated 2500 people rallied outside of the Statehouse in Columbus Ohio to protest new legislation aimed at curtailing the loan practices used by the Payday loan industry.
Ohio lawmakers have passed House Bill 545, which sets the maximum annual interest rate on payday loans at 28 percent, this is a far cry from the current 391 percent. It also sets a loan maximum of $500. It would require that loan terms would have to run at least 31 days, (current loans are usually 14 days). And a borrower would only be allowed four payday loans per year.
There are some 1,600 Payday Loan companies employing an estimated 6,000 people in Ohio. Industry insiders are saying that this new legislation will force the closure of many of these establishments, thereby forcing layoffs in the industry.
This is a contentious subject and while an APR of 391% seems completely ludicrous to reasonable people, in monetary terms it is quite small when the length of the loan is taken into account. Payday loans are usually for a 14 day period, and the cost to the consumer is about $15 per $100 borrowed. Slashing the interest rate to 28% will reduce the profit margin to less than $1.50 thereby making it a money losing prospect for the Payday loan companies.
There are also arguments that without this avenue of emergency lending people will be forced to seek more riskier methods to obtain money. The vast majority of the Payday loan customers to not have other avenues of credit to pursue. Much is written about the plight of the working poor and the tightrope they walk, one paycheck away from homelessness, this legislation could well be the straw that breaks the camels back for some low income families.