Ohio moves to cap payday loan rates, action needed to protect Illinois borrowers

May 19, 2008 - 2:00am

 

The Ohio General Assembly passed legislation last week
that would cap interest rates on payday loans at 28 percent – following several
other states that have taken steps to drastically curtail the triple digit interest
rates charged by payday installment lenders.

Ohio has taken the lead in protecting consumers from high cost debt,” says Lynda Delaforgue, co-director of Citizen Action/Illinois.  “Here in Illinois, business as usual means a bad deal for consumers.”

In Illinois, a loophole in the 2005 Payday Loan Reform Act, which set out strong consumer protections for shorter term loans, has been used by lenders to evade the act.  Rather than abide by the fee cap, underwriting criteria and protections against refinancing abuses, lenders have instead opted to offer longer term, triple digit interest rate loans.

“Getting a short term loan in Illinois now means choosing between one with strong consumer protections and one without,” said Tom Feltner, policy and communications director at the Chicago-based Woodstock Institute.

Strong consumer protections that would protect every borrower walking into a payday loan store are currently under consideration in the Illinois General Assembly.  The current proposal would substantially lower the cost of borrowing, prevent over borrowing, or using the proceeds of one payday loan to pay off another.

“Many working families are struggling to pay off these predatory loans” said Greg Brown, Director of Social Policy at Metropolitan Family Services. “This is a critical opportunity to protect consumers in Illinois.”  

The Ohio Senate voted 29-4 to approve House Bill 545, which passed the Ohio House two weeks ago.  The bill limits interest rates on payday loans to 28 percent annually.  Ohio Governor Ted Strickland is expected to sign the bill, according to several Ohio news sources.