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Giving Ohioans an Alternative to High Interest Payday Loans
By U.S. Sen. Sherrod Brown
Guest Column
When unexpected costs arise before tax returns come in,
workers are faced with a dilemma and many workers turn to
predatory payday loans to make ends meet. These loans –
which can carry hidden fees and can have annual interest
rates more than 500 percent – often trap borrowers in a
cycle of debt. There are more payday lending stores in the
United States than there are McDonald’s and Starbucks
combined. These operations are thriving at the expense of
low-income Americans.
Come tax time, many of these same Americans have money
waiting for them in the U.S. Treasury through the Earned
Income Tax Credit (EITC), one of the most effective
anti-poverty programs working to help Americans today. The
EITC provides tax relief for low-income workers, encouraging
work while reducing poverty. In 2012, more than 940,000
Ohioans received more than $2.1 billion worth of tax credits
through the EITC. The credit serves as a lifeline that
allows families to pay for necessities they might not
otherwise be able to afford.
With an average EITC in Ohio of more than $2300 and the
average payday loan being less than $400, it’s clear that
many Ohioans would prefer to turn to get the refund owed to
them early as opposed to paying exorbitant fees.
We need to provide an alternative to payday loans so that
people in need can avoid paying hundreds in additional fees
and interest. Three-quarters of payday loan borrowers are
employed, and many of those workers earn average salaries
that could make them eligible for the EITC. My plan, the
Early Refund EITC Program, would give these workers an
interest-free avenue to access emergency funds.
The Early Refund EITC Program would allow workers to obtain
an advance upon a portion of their EITC, helping them to
avoid taking out a payday loan. The advance – which is
capped at $500 so workers can retain the majority of their
EITC funds after they file their tax returns – will only be
available to claim in the second half of the year, after
workers have already demonstrated their eligibility for the
EITC.
Family priorities like groceries, dentist appointments, and
utilities shouldn’t go unmet and Ohioans shouldn't be
trapped with a lifetime of debt from predatory loans. This
program will help protect low-income workers, allowing them
to better provide for themselves and their children.
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