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Regulations leave payday loans as risky consumer debt options

Living from paycheck to paycheck can leave you confronting an unexpected expense with no way of paying it until your next payday. Payday loans help people to bridge the gap between paychecks with short-term but high-interest loans. Interest rates are usually in the double-digit range, but they can skyrocket when the fees charged by lenders are factored into them.

The state regulations may not be enough to keep people struggling to make ends meet from falling prey to the lure of high interest rate short-term loans. A debtor who may default on payments should speak to an attorney to find out what can be done before the creditor harassment and debt collection efforts begin.

Ohio is among many states that have enacted laws to regulate the payday loan industry, but a review of the provisions of the statute make it readily apparent that an individual relying on payday loans can quickly get in over his or her head and end up facing debt collection following a default on payments. The highlights of the state's Short-Term Loan Act include:

  • Payday loans may not be for more than $500
  • Annual percentage interest rate cannot exceed 28 percent
  • Loans cannot be due in less than 31 days
  • Borrowers are entitled to one free 60-day repayment extension
  • Certain fees, such as for a bounced check, are capped at $20

Payday lenders must put the loan terms in writing. The written agreement must include a disclosure of the fees and charges in addition to the interest rate that the borrower will pay. Lenders must comply with provisions of the federal Truth in Lending Act in disclosing the true cost of the loan.

Lenders offering payday loans in Cincinnati and other communities must be licensed in Ohio and have a physical location within the state. Loans cannot be offered through the mail or over the telephone or Internet.

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