Another triumph for anti-payday loans forces

June 19, 2008

Ohio joined Arkansas, New Hampshire, Oregon and the District of Columbia recently by capping a two-digit interest rate on payday loans. The state move was the latest regulatory change since Congress limited interest to 36 percent for payday and car title loans to military families last year.

The Pentagon said predatory payday lending threatened the quality of life of military families and combat readiness of servicemen and women. Payday loan and car title companies are outlawed near military bases.

The bipartisan legislation signed today takes a major step toward protecting Ohio consumers who are already struggling with debt by strictly regulating payday lenders and lowering the maximum interest rate for short-term loans,” said Gov. Ted Strickland. He signed the bill into law June 2.

The bill caps the interest rate for payday loans at 28 percent, reduced from the current annual interest rate of 391 percent, sets a $500 borrowing limit for consumers and restricts borrowers to four loans per year. Additionally, the legislation extends loan terms to 31 days from 14 days.

With payday loans, a customer writes a check to a lender. The amount on the check equals the amount borrowed plus a fee that is either a percentage of the full amount of the check or a flat dollar amount.

Some payday lenders offer an alternative “automatic debit” agreement. Customers who sign this agreement give the lender permission to automatically debit the customer’s account at a future date.

Automatic debit arrangements, in particular, are often marketed to public assistance and Social Security recipients. The check or automatic debit is held for up to a month, usually until the customer’s next payday, hence the term payday loan, or until receipt of a government check.

Source : http://www.finalcall.com