Arizona and Ohio Go to the Ballot Box to Reject Payday Lending

By Leslie Parrish, Senior Researcher, Center for Responsible Lending

On Tuesday, Ohio and Arizona voters not only selected leaders to deal with the credit crisis on the national stage, they also roundly rejected ballot initiatives sponsored by the payday lending industry in an effort to curtail high-cost lenders from preying on vulnerable families.

My organization, the Center for Responsible Lending, advocates for reasonable interest rate caps that apply to all small loan products, including payday loans. While these loans are marketed as a quick and easy way to deal with an occasional unexpected expense, their high cost and short two-week term typically cause borrowers to become trapped in a cycle of debt where they must take out a new loan every pay period. The average borrower takes out more than eight loans a year (usually on a consecutive basis) at the cost of around 400% APR. More often than not, borrowers ultimately end up paying more in fees than they actually receive in credit.

Payday lending in Ohio and Arizona grew rapidly once lenders were granted an exemption to their states’ small loan interest rate caps which allowed them to charge 400% annual interest. Hearing of problems stemming from the payday lending debt trap, Ohio policymakers overwhelmingly passed bi-partisan legislation to prohibit any small loan lender from charging more than 28% annual interest earlier this year. Similarly, Arizona legislators refused to renew the authorization of payday lending in that state, which is set to expire in July 2010.

Seeking to rebuke policymakers, the payday lending industry took the issue directly to voters through the ballot initiative process in each state. The industry poured over $30 million into their campaign, vastly outspending a broad coalition of grassroots groups in each state concerned about the negative impacts of payday lending. Voters in Ohio and Arizona, however, overwhelmingly rejected these referenda by large margins-with 60% and 63% casting their ballots against the payday lending industry respectively.

We have seen the impacts of predatory subprime mortgage lending reverberate from neighborhoods on Main Street to our larger financial system on Wall Street. At a minimum, this has shown the inadequacy of granting mere “access to credit”-indeed, if this credit crunch has shown us anything, it’s that we are drowning in credit…and debt. Instead, Ohio and Arizona have voted for credit to only be offered on reasonable terms, giving struggling families a fighting chance to better secure their financial futures.

Ms. Parrish can be reached at Leslie.Parrish@responsiblelending.org