Saul W. Adelman, Associate professor of finance at Miami University in Oxford, Ohio has this to say in a letter to the Columbus Dispatch.
Ohio House Bill 545, which is headed for debate in the Ohio Senate, should not be approved. This bill, which would cap the annual interest rate for payday loans at 28 percent, supposedly would help individuals who opt to use payday-loan services. This is a populist bill that ignores reality and would result in the opposite happening.
Let’s look at the facts:
• The reason payday loans exist is that the other financial institutions fail to meet this need. Payday lenders, seeing an opportunity to make a profit, have filled the void.
• There is a lot of risk associated with this type of lending and, therefore, it commands a high interest rate.
• Payday loans are cheaper than bouncing a check.
…I am not advocating the use of this type of loan as a steady diet, and I do recognize the dangers. But comparatively, the dangers of bouncing checks and the associated damage to your credit, bank relations and bank balance are considerably worse. The bottom line is that people using payday loans are generally making a rational choice. House Bill 545 should not be passed. And you have to wonder which industries are behind this legislation.
