Anyone that’s following the Ohio drama knows the situation. I have two smaller issues and a bigger one with this article.
Small issue number is that the law prohibits lenders from charging interest rates above 28%. An annual percentage rate is not an interest rate. The APR is the present value of the future cash flows of the payments. Although, the cost of credit is still the same as before the interest rate cap, the interest rates are still below the 28% cap. What people do not realize is that the lenders in Ohio are following the law. IT IS NOT A LOOPHOLE. They’re operating under two other, non related laws.
Issue number two is the Ohio Attorney General, Richard Cordray’s response, “We have been receiving complaints from consumers, and from them we have discovered that some lenders are still charging fees and interest on small loans that may add up to an annual percentage rate of in excess of 300 percent. “This is substantially equivalent to the fees charged by payday lenders under their previous business model.”
Instead of saying, don’t take the loan out if you do not like the terms, he’s going to write a letter and try and force people to lend money below a 28% APR? It’s probably going to be law suits. What a great use the tax payer dollars. This leads into the the major problem I have with the article.
If the state thinks that 28% payday loans are so profitable, why don’t they offer them. They can use this money to chip away at their budget deficits.
I am all for a level playing field, but the legislature is taking the wrong approach. A hybrid between interest and fees would solve many components of what people have a problem with this industry. Maybe allowing a substantial fee to be charged on the first loan and then any rollovers accruing interest at an interest rate that makes sense to lenders.
