NCPA - National Center for Policy Analysis


October 7, 2009

Months after Ohio voters approved a law limiting interest rates that can be charged by payday lenders, the fallout continues, says Jeff Kursman, spokesman for Cincinnati-based Check 'n Go, one of the nation's largest short-term lenders.

  • Already 700 of the 1,600 payday loan offices in the state have closed.
  • Check 'n Go has just 28 locations left in the state, down from 72 before the law changed.

Payday lenders typically make two-week loans.  Until the Ohio law changed, Check 'n Go charged $15 per $100 loan.  Extend that 15 percent over a year, and it's an annual rate of 390 percent.

Opponents say that's far too expensive and traps borrowers in a cycle of debt.  But payday lenders say it's unfair to view it as an annual rate, because borrowers are paying the loan back in two weeks.  They also say they need to charge that much to cover costs.  According to Kursman:

  • Check 'n Go's cost to make a $100 loan ranges from $13 to $14.
  • At a 28 percent annualized rate it can charge only $1.08 per $100 for a two-week loan.

"You're not going to stay in business that way very long," Kursman said.

But with people still needing the loans, payday lenders are finding ways around the changed law:

  • Check 'n Go started operating under Ohio's Small Loan Act.
  • That allows it to charge a fee of $30 on top of $5.40 in interest for a $505 loan that is its current standard.
  • The $35.40 cost is less than half of the $75 it used to charge.

On top of that, though, it no longer gives out the money in cash.  Instead, it issues a check.  And if borrowers want Check 'n Go to cash the check, it'll charge them a 4 percent fee.  That's another $25.

Borrowers don't have to cash the check there, Kursman said.  Opponents claim some payday lenders require borrowers to cash the check on the spot and pay the fee.  But Kursman said only about 40 percent of Check 'n Go customers use its check-cashing service.

Source: Steve Watkins, "Ohio Payday Loan Law Takes Toll on the Needy," Heartland Institute, September 2009

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