State Representative Jay Hottinger

One of the most common businesses you will find in Ohio is no longer Burger King, Wendy’s, or McDonald’s. Growing from just over 100 branches in 1996 to over 1500 branches in 2006, the payday lending industry now operates more offices in the state of Ohio than the big three fast food franchises listed above combined, according to a report issued by Policy Matters Ohio. While one could blithely pass off such growth as necessary to fulfill a financial need and good for healthy competition, it also signifies a great burden on ordinary Ohioans.

The expansion of the payday lending sector, now spanning 86 of Ohio’s 88 counties, is not only an issue in Ohio, but the Center for Responsible Lending reports that nationwide payday lenders issued about 83 million loans each year to roughly 7.6 million workers. Because of the way that these payday loans work roughly 5 million workers are sucked into a spiral of debt costing them about $3.4 billion a year.

In Ohio the state legislature has recognized the financial danger associated with payday loans and has limited interest rates, loan origination fees, and the term of the loan. Under Ohio law the payday lender may not charge you more than 5% interest or a $5 loan origination fee for each $50 you borrow up through a $500 loan. For every $50 over that $500 mark you cannot be charged more than a $3.75 loan origination fee. No payday loan can exceed $800, and may not be for less than a two week period, or for more than six months.

In an effort to protect borrowers from unconscionable payday lenders, the payday lending industry also must satisfy state regulators that they are on solid financial footing, demonstrate sufficient character and responsibility, and pass a criminal background check. They must also have a minimum net worth of at least $100,000 and be a licensed check casher under Ohio regulations. Payday lenders may not issue more than one loan at a time to a borrower, and no borrower can take out a second loan to pay off the first loan and drive themselves even deeper into debt.

All of this is not to disparage the idea that payday lenders can provide a necessary service to Ohio residents, but these loans should only be used on a very rare occasions. Perhaps you need a few dollars for groceries to tie you over from Monday to Friday when your next paycheck is issued. A payday loan may bridge that gap, but I would caution residents not to get stuck in the habit of using payday lenders because the vicious cycle of debt they can perpetuate. Policy Matters Ohio calculated in their report on this topic that a two week $100 loan combined with the $10 loan origination fee and the 5% interest rate would result in an annual percentage rate of 391%. The Center for Responsible Lending also reported that 99% of payday loans made nationwide go to repeat borrowers.

When you do seek out a payday loan you can take a couple of steps to protect yourself. Beware of lenders offering quick cash through the internet or through classified ads because they may not be properly licensed under state law. You can always check the status of a lender’s license by calling the Division of Financial Institutions at 1-866-278-0003 or by logging onto the Ohio Department of Commerce website at www.com.state.oh.us/dfi and using the “look up” feature. Before you sign for your loan make sure that you know the entire cost of the loan and that you can pay the loan back within the specified period of time.

I would also encourage readers to consider taking steps to alleviate their need for payday loans. When you receive your federal, state, and local tax returns, put a portion of any proceeds aside in a local bank for use in an emergency. Cut back the number of days you purchase your lunch at work or any other daily expense you can live without. At a modest savings of $10 a week you could have over $500 set aside in just one year. If you were to take out a $100 payday loan for groceries five times during that same year it could cost you an additional $75, or lunch for three weeks at $5 a day.

As always, I welcome your questions, comments and input on state government issues. Please feel free to contact me by mail (State Representative Jay Hottinger, 71st House District, 77 South High Street, Columbus, Ohio 43215), by email (district71@ohr.state.oh.us) or by phone (614-466-1482).