Ohio is Fourth in the Nation for Payday Loans

Ohio flag and state
New survey results show that a whopping 10 percent of all Ohio residents have borrowed payday loans within the last five years.

Ohioans ranked fourth in the nation after Missouri, Oklahoma and Washington for visits to websites and stores selling instant loans.

According to the Pew Charitable Trusts’ Safe Small Dollar Loans Research Project, states with less-restrictive lending laws, like Ohio, have higher rates of lending. Conversely, states that prohibit check-cashing businesses tend to have lower rates of instant lending.

A national survey shows in 2010 that 5.5 percent of adults (or 12 million Americans) have borrowed instant loans. Most borrowers used their loan to pay for basic necessities, and not unexpected expenses like car repairs.

“Payday loans are marketed as two-week credit products for temporary needs. In truth, average consumers are in debt for five months and are using the funds for ongoing, ordinary expense—not unexpected emergencies,” said Nick Bourke, project director for Pew’s Safe Small-Dollar Loan Research Project in a Columbus Dispatch interview.

Usage rates for instant loans varied widely across the States, ranging from a lowly 1 percent in Connecticut to 13 percent in Oklahoma.

Those who do make use of these financing products take out an average of eight payday loans per year. The average annual total for a single borrower’s loans added together is $375. But the average amount repaid in interest is a shocking $520.

“The report dispels some of the myths that the industry regularly puts out that payday loans are for an occasional emergency and they don’t put people into a cycle of debt. Ohio is inundated with payday-loan storefronts, and what’s why we have so many loans”, said Bill Faith, executive director of the Coalition of Homelessness and Housing in Ohio.

Amy Cantu, spokeswoman for the Community Financial Services Association, defended the industry by explaining, “Given the recession and the economy that we are in, many Americans have depleted their savings and there is no cushion, many are living paycheck to paycheck and must turn to short-term credit options to manage their financial obligations.” According to Cantu, instant lending is a cheaper alternative if a borrower repays the loan on time.

The survey by the Pew Trust arrived on the heels of increased attention from both state and national regulators like Richard Cordray, the new head of the Consumer Financial Protection Bureau and a former Ohio Attorney General.

Instant lenders flexed their muscle by increasing campaign contributions to lawmakers. This prompted a debate over state regulation of the instant loans industry.

Cleverly avoiding a 2008 General Assembly crackdown, instant lenders in Ohio switched to a different lending license after being discovered charging annual interest rates of 391 percent. The crackdown attempted to cap their rates at 28 percent.

Time will tell if the demand for payday loans will continue to match the intensity of the recession or if legislation will end instant loan lending altogether in Ohio.