The court unanimously ruled that payday lenders may keep on exploiting a loophole in a state law, 2008's Short-Term Lender Act, which limits interest and fees to 28 percent or less, imposed a
The loophole allows payday-style loans to continue as interest-bearing mortgage loans.
He said the
"Instead, the effect of their decision is to endorse the current business model for payday lending in
But Traynor said the court's decision and was fair and meant that "obviously we were allowed to lend under that law, which made the loans legal that were doing."
"With the law that they had changed ... a
There are also nearly 600 title-loan companies that make short-term loans to those who use their cars as collateral, Cook said.
The highest interest rate allowed by the Ohio Mortgage Loan Act is 25 percent, but interest is defined not to include loan origination fees and credit check fees permitted under that statute, she said.
"So then if you look at the fees plus the principle and the calculated annual percentage rate interest on a single-pay loan, then those loans are a triple-digit APR (annual percentage rate)," Cook said.
An APR, she said, reflects "the true cost of borrowing" because all of the fees, with a few exclusions, are calculated in the interest."
Payday loans: What's the issue?
Cook said the problem with a payday loan's short repayment period and balloon repayments is that people struggle to find the money to pay them back.
"If you didn't have
The vast majority of studies overwhelmingly find that borrowers are repeat borrowers that take out an average of eight loans and are indebted for half a year, Cook said.
"Almost half the borrowers are the people who are have fixed incomes, so they're never going to have any more than they had this month," Cook said. "Once they start down the payday loan route, they're really trapped."
But Traynor said payday loans are an "extremely important" service for people to have, especially in today's economy and when people are in-between paychecks.
"People need access to short-term cash and there's a huge void in that market," he said, noting that ZipCash provides cash instead of checks or money orders that need to be cashed for a fee. "We definitely are a cheaper alternative."
Studies show borrowers often are overly optimistic about repaying a loan, Cook said.
"Nobody goes into a payday loan thinking 'I can't possibly pay this back,'" she said. "They go in thinking ... 'I'll do X, Y, Z and I'll be able to pay this back' and then those things don't happen."
Cook said the
But while the bureau can control many of the conditions on lending, it does not have the authority to do others, including imposing an interest rate cap.
"The market has spoken loud and clear on this issue," Crowley said. "
Transparency is a hallmark practice of OCLA members, Crowley said. "Our customers are fully informed about the costs, regulations and payment due dates when taking a consumer loan," he said.
Cook disagreed, citing a
"Disclosures are meaningless to people who are desperate for money," she said. "It doesn't matter if you tell them it's going to cost you 391 percent and you have to pay us back twice as much in two weeks."
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