As the COVID-19 pandemic continues to have a presence throughout the country, Americans who have come under financial stress have turned to payday lending after losing their source of income.
Policy Matters Ohio Project Director of Asset Building Kalitha Williams discussed the various types of short term loans, how they affect consumers and what is being done to make these loans more fair on America’s Work Force Union Podcast.
Predatory payday lending and other short term loans
Payday lending reform has been tried multiple times in the Ohio legislature, with little success or change to the industry.
Things have essentially stayed the same, Although interest rates are now capped at a much lower number than previously allowed, lenders have made their money elsewhere. Instead of making the bulk of their profit on the loan itself, Williams said lenders have created service fees, cash checking fees and more. These fees are expensive and essentially make up for the lost interest.
Williams said payday lenders have even expanded their reach into auto title lending and other types of short term loans.
Following the COVID-19 pandemic, she suggested the Ohio legislature reign in payday lending, reduce interest rates further and examine the legitimacy of certain fees.
Installment lending is also growing in Ohio, according to Williams. These are loans with much longer periods, larger amounts lent and high interest rates.
What is being done about payday lending?
Williams said Policy Matters Ohio is working with policy makers to cap interest rates at a lower percentage. Since the pandemic has caused many to lose their sources of income, people are turning to these loans. She believes this will help build their case for lower interest rates.
While there is no set federal cap on interest rates, some states have put strict caps on interest rates. She added that some states do not even allow payday loans.
Finally, she discussed legislation at the federal level. While there is legislation that would cap interest rates at 36 percent, the bill has little chance of being voted on or even discussed during this lame duck period.