by George C. Leef
In 2006 North Carolina joined a growing list of states that ban “payday lending.” Payday loans are small, short-term loans made to workers to provide them with cash until their next paychecks. This kind of borrowing is costly, reflecting both the substantial risk of nonpayment and high overhead costs of dealing with many little transactions. I wouldn’t borrow money that way, but there is enough demand for such loans to support thousands of payday-lending stores across the nation. They make several million loans each year.
But no longer in North Carolina.
For more on this article, go to The April 2008 edition of The Freeman, a publication of The Foundation for Economic Education
Photo: Unwelcome in West Virginia - A billboard near the foot the Bartow Jones Bridge in Henderson advertises payday loan services across the river in Gallipolis, Ohio. Payday loans were officially banned in West Virginia last year following an agreement with the attorney general's office. For more on the agreement, go to The West Virginia Record.
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The Ohio General Assembly recently passed legislation to cap interest rates on payday loans at 28% APR. Ohio is one of the payday lending industry’s most profitable battlegrounds and the industry is attempting to overturn House Bill 545 through a ballot referendum in November. Let’s hope the industry is not successful in their endeavor. Over 300,000 Ohioans are trapped in a cycle of debt almost exclusively as a result of having taken out payday loans and the average borrower in Ohio takes out nearly 13 loans per year – not exactly a short-term fix to a short-term financial problem. Much of the “demand” for these loans is artificial, with one loan being used to pay off another and so on. In our state alone, the industry racks up over $318 million in interest and fees annually, stripping wealth from our families and communities instead of building wealth and prosperity in a state that is struggling to reinvent itself. The poor will benefit greatly by not being duped into using a product that provides zero tangible benefit and puts them further and further into debt.
Lawmakers, credit unions and depository institutions in Ohio and other states should be working together to develop safe and quality alternatives to payday loans. We can do better than offer our citizens 391% APR!
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