Payday Lending Cap Springs the Trap

I heard from a few payday lenders following my last blog post lauding the Ohio legislature for their passage of a 28% interest rate cap on payday loans. They thought I was being callous to the job loss that would be brought on by the new law. They gave me momentary pause. But then I considered the work of my former colleague Leslie Parrish, who has moved on to work at the Center for Reposnsible Lending. She argues convincingly that measures short of an interest rate cap fail to fix the problem.

The Ohio Coalition for Responsible Lending has the CEO of Cash America on record as describing the business model as one that strives to transform customers into a “repetitive, long-term customer, because that’s really where the profitiability is.” Well, that may be so but it creates a debt trap that can be difficult for people to get out of.

The action of the Ohio legislature is getting pretty high marks all around the state. Here is the Cleveland Plain Dealer’s editorial of support. More importanlty, it is serving as a model for others aound the country who seek to limit the debt trap.