Fortunately, Ohio and Arizona voters saw through the deception of the payday lending industry at the ballot box on November 4th and voted to reject payday lending in their states. The trade group for the payday lenders used dirty tricks and misleading advertising trying to keep predatory 391% annual interest rates legal for payday loans. Ballot propositions initiated by the industry, supported by over $30 million from its trade group, and featuring measures that would make legal its predatory practices, suffered defeats in both states. Fortunately, voters recognized the deception in the industry and its advertising. Payday lending is an $85 billion industry and it is politically powerful.
Payday lenders outspent the Ohio grassroots coalition by over 60 to one, and still lost by a two to one margin in the vote. In Arizona, the grassroots campaign was outspent about 90 to one. Uriah King, policy associate for Center for Responsible Lending, observed:
These two citizens ballots are really a mandate for cracking down on payday lending throughout the nation. You can get no clearer message than a huge majority of voters rejecting 400% interest loans. A reasonable two-digit cap is sensible, fair, and it works to keep bad apples out of the consumer lending arena.
Combating millions of dollars of deceptive advertising, spirited grassroots campaigns in each state took on a national industry that depends on making high-interest loans repeatedly to customers who cannot afford to pay them off for good. Payday loans are systematically converted into long-term, high-cost debt for working families. The average payday borrower has more than eight transactions per year, costing them more in interest than the original loan. Congress passed a 36% cap protecting military families from this practice, and 15 states and the District of Columbia have chosen to control predatory lending by enforcing interest rates in that range.
The failure of the payday industry to circumvent the efforts of state lawmakers in Ohio and Arizona is clear evidence that citizens will crack down on irresponsible lending practices, if given the opportunity. It also says that people are catching on to the deceptive practices of the industry. That’s good news!
Payday lending is illegal in 15 states thanks in part to a wave of lending laws passed since 2001. The federal government has capped interest rates on loans made to military families, but everybody else is fair game for these vultures. Several cities have used zoning changes to limit the number of lenders, especially in low-income neighborhoods. Payday lenders fought back with the ballot measures.
Payday industry lenders prey on the same low-income and moderate-income families that took out subprime home loans. Once these loan sharks get a hold on a customer they never let go. Folks are still paying off the principal on their loans, plus hundreds of dollars in fees, years after taking out their loans.
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