Flash player is required to view weather conditions. Download

site web  

After 10 years of explosive growth, the payday lending industry faces the prospect of tighter regulation as consumer groups and a handful of state lawmakers push for ways to protect borrowers.

In Ohio, payday lenders charge 15 percent interest per $100 over two weeks for these loans. However, critics say the interest rate climbs to about 400 percent when calculated over a year, meaning that a borrower could accrue $45 in additional costs on a $300 loan.

"Turn it this way, turn it that way, it looks like usury to us," said Paul Bellamy, a research consultant with the Ohio Coalition for Responsible Lending.

Lyndsey Medsker, a spokeswoman for the Community Financial Services Association of America, said that the annual figures for these loans are misleading.

"You're not taking it out for a year," she said. "You're taking it out for two weeks."

The coalition — a group of 160 consumer, faith-based and labor groups — has begun a push this year to cap the annual rate at 36 percent. The group has targeted payday lenders because it believes they provide high-interest loans to people least able to afford them, keeping them mired in poverty.

Last year, the U.S. Congress approved an identical bill for those companies that provide short-term loans for military personnel. Bellamy said the coalition wants Ohio law to mirror the federal law in this regard.

During the last decade, payday lenders in Butler and Preble counties have proliferated, climbing from four in 1996 to more than 40 last year, the coalition says. Statewide, the number of stores grew from 100 stores in 1996 to more than 1,500 in 2006, according to study by Policy Matters Ohio and the Housing Research and Advocacy Center. This means Ohio has more payday lending storefronts than it does McDonald's, Burger King and Wendy's fast-food restaurants, the researchers found.

Ohio Rep. William Batchelder said this growth underscores the need for banking alternatives for consumers who frequent payday lenders.

"A lot of people are very concerned about this," the Medina Republican said. "I think there is an acceptance that something needs to be done."

Medsker said her Alexandria, Va.-based trade group wants states to mandate short-term, low-interest payment plans for people who can't repay their loans on time. The association requires its members to allow clients who can't pay within the two-week time frame to enter into an eight-week payment plan with no additional interest, she said.

Contact this reporter at (513) 820-2122 or ttresslar@coxohio.com.