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Payday lending attracting scrutiny
Legislation aims to cap industry's high interest rates, fees.
Tuesday, September 25, 2007
When Diane Fahl finds herself facing a financial emergency, she says her only option is to turn to a payday lending store where she can get fast cash to hold her over until her husband's next paycheck arrives.
She utilizes the two-week loan service "once every couple of months or so" when her family needs "emergency money." On Monday, she was getting the money to have her electricity turned back on.
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She said the interest rates seem high — she pays back $172 for the original loan of $150. That is a 15 percent fee.
"But," she said, "the speed and the fact that it's hassle-free make it worth it."
The number of Clark County's payday loan stores, shops like Check Into Cash and CheckSmart, has increased from four to 16 in the last decade, according to the Ohio Coalition for Responsible Lending.
Jeff Ankrom, professor of economics at Wittenberg University, said certain economic characteristics found in Springfield are attractive to these lenders. Payday lenders, he said, seek out communities with "lower overall levels of income, ... lower levels of educational attainment and higher minority populations."
Those who use payday lenders are more likely not to have bank accounts, so they rely on the stores to cash checks, he said.
According to "Trapped by Design: Payday Lending by the Numbers," a study the coalition released Wednesday, Ohio borrowers rack up an annual $318 million in loan fees, and the average borrower uses the service from multiple locations 12.6 times per year. The average two-week loan amount, $328, will ultimately cost a borrower $637 in fees at the end of the 12-loan cycle.
Springfield's Check Into Cash, at 1001 North Bechtle Ave., charges borrowers $15 per $100 borrowed, which is the average in Ohio.
The coalition is endorsing legislation proposed by state Reps. Bill Batchelder (R-Medina), and Bob Hagan (D-Youngstown) that would cap interest rates at 36 percent and suspend the use of post-dated checks as collateral.
Darryl Dever, spokesman for The Ohio Financial Services Association, which represents payday lenders, said that most people use the service because they have a short-term need. The legislation may put some lenders out of business, lowering fees to $12 for a two-week $328 loan.
