Clark Howard's Tips

May 5, 2008

Would you take out a loan with a 782% interest rate? Probably not. Yet that's the interest that payday lenders are ripping Ohioans with everyday.

Payday loans are illegal in about 25% of the nation's states because they create extreme financial hardship for families. States that are rife with payday lenders include California, Texas, Tennessee and Ohio.

The Buckeye State is currently trying to cap the interest rate at 28% on payday loans. One major lender, Rent-A-Center (RAC), had been giving money to a local food bank that was part of a coalition supporting the loan cap. So what did the RAC do? It threatened to pull all charitable contributions. Such an action may be illegal -- that's for the lawyers to decide. Clark doesn't understand how you can pretend to be good by giving food and then turn around and rip people at 782% interest.

The payday loan industry knows it has a reputation for destroying lives. Its lobby has been giving a lot of money to influential politicians in the hopes of preventing caps or getting them overturned.

How does Clark's disgust with payday lenders square with his free market stance? In some ways it may seem inconsistent. But the lenders never disclose the high rate. Instead they do everything to make sure it's hidden. He'd be fine with 728% interest and full disclosure, but that's not the reality. Meanwhile, there is a reasonable level above which interest rates are usurious. 728% might just be that point. Clark invites any RAC representative to come on the air and explain their actions with the food bank.

Consumer advice courtesy of