Interest on short-term loans would be capped at a 28 percent annual percentage rate under bipartisan legislation introduced Wednesday in the Ohio House.
The bill limits payday loan lenders from charging more than 28 percent interest plus monthly fees of 5 percent on the first $400 loaned, or a maximum of $20. The bill also prohibits charging monthly payments exceeding 5 percent of a borrower’s gross monthly income.
Borrowers in Ohio on average pay an effective 591 percent annual percentage rate, according to research from the Pew Charitable Trusts. Borrowers often can’t repay the loan when it’s first due and must roll it over. The average cost to borrow $300 in Ohio is $68 per two-week pay period, or $680 over five months — the highest in the nation.
Short-term lenders say they offer a necessary service to underserved Ohioans and further regulations would force them to close.
A 2008 law capped payday loan annual percentage rates at 28 percent. But it has had little effect on average annual percentage rates because lenders registered to lend under other parts of state law. Republican leaders have since declined to take up the issue.
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