Quick loans are everywhere – from TV ads to heartbreaking stories through the social networks that tell of bankrupt relatives and friends. However, this industry is among the fastest growing number of participants and assets despite the competition of banks and leasing companies. A key advantage of payday lenders is that their services are really fast – usually, the time between bidding and receiving is at most a few days and usually up to several hours. Unlike banks, formalism has been reduced to a minimum, loans are available at home, on the phone, and recently online. Thus, their services can also benefit and live in remote areas without bank service. Last but not least, quick loan lenders are more flexible in terms of proof of income and past credit history, which is key to the many employed in the informal economy.
Of course, not everything is pretty good. Credit counselors’ forums and practices abound in terrifying stories about people who have lost everything because of a few hundred dollars of credit, which has subsequently grown tens of times. Courts have also been overwhelmed with many such cases. Sometimes a loan is taken to repay another, the brokers used by some of the fast-paced companies do not always correctly explain all the risks and clauses in the contract, and interest rates and fees are often times higher than those for bank products.
A coalition seeking to reform payday lending in Ohio announced Thursday it intends to put a constitutional amendment on the November ballot. Critics of payday lending say fees and interest rates can quickly add up, smothering a consumer’s ability to pay back the loan.
“You get trapped in what’s called the debt trap,” said Nick DiNardo of Ohioans for Payday Loan Reform. “The amount that you owe them each month is so much that you have to refinance the loan every month, or else you can’t afford to pay your other bills.”
But payday lending companies argue the loans are important for consumers who are in need of a quick cash infusion, fast. Leaders of the coalition, Ohioans for Payday Loan Reform, say they are fed up with the lack of progress on a bill in the legislature that would cap payday loan interest rates at 28 percent per year and close a loophole created in 2008.