By repeating that cycle pay period after pay period, the borrower accumulates fees and interest in excess of the original amount borrowed, which never gets paid back. The average payday loan borrower gets 13 loans a year, says Faith.
“That hurts the rest of the community because that is less money they have to pay their other bills, vendors or to make purchases with,” he says. “They get no value for their money. … They simply borrow the same money over and over.”
Bellamy presents the payday loan business as a microcosmic model of the subprime lending debacle, which is pushing the nation toward recession. He says both operate on the concept that every American has a constitutional right to credit. However, because of the risk inherent in lending money to the working poor, the lenders must charge higher fees and engage in practices that entrap the borrower into a lifetime of increasing debt.
“It is socially and economically bad policy to permit this kind of business model from existing,” he says.
As the bursting of the housing bubble has demonstrated, while a handful of savvy lenders profit, the ramifications and losses are widespread when the system collapses.
“It’s not the borrower who pays the price at the end of the day,” he says.
Several bills are under consideration in Ohio to limit payday lending. Faith says COHHIO supports H.B. 333, which would limit the interest rate to 36 percent APR. The Ohio Legislature exempted the payday loan business from established maximum usury rates. COHHIO also supports lending models that allow for smaller installment payments, rather than an impossibly large single sum.
As a state, Ohio has one of the highest numbers of payday loan storefronts. In Ashtabula County, on average, a new storefront has opened every year since 1996.