New restrictions are in place for the payday loan industry. A bill in Ohio was recently passed that will put new limits on payday loans. The law, which is effective September 1, 2008, would limit the allowable annual interest rate on payday loans in Ohio to 28%. This is a pretty low rate if you are familiar with payday loans and their outrageous APRs.

Payday lending offices usually charge about $15 for every $100 borrowed on a two-week loan, which comes out to an annual interest rate of 391%. The bill also means a borrower is only allowed four payday loans per year, with a maximum loan amount of $500, much less than the current limit of $5000. Obviously this bill would put a nice dent in the payday loan industry in Ohio.

This bill may be overall good for Ohio citizens from a financial point of view. Yes, it may take away a credit option for those in need, but payday loans contribute to poor management of personal funds because people continue to take out new loans to pay off old loans and borrowers find themselves caught in the payday loan trap.