By STEPHEN MAJORS – The Associated Press
Tuesday, September 23, 2008; 5:02 AM

COLUMBUS, Ohio — The payday loan industry is bankrolling ballot issue campaigns in Ohio and Arizona to preserve the average 391 percent annual interest rates they charge, as the two states become the focus of industry watchers and consumer advocates.

The industry is trying to get an initiative on the November ballot in Ohio to overturn a new law that would cut their annual interest rate to 28 percent.

Lenders have already succeeded in getting an initiative on the Arizona ballot that would enable them to continue charging the higher interest rate. Without passage, the ability of lenders to charge 391 percent will expire in 2010 and they won’t be able to charge higher than 36 percent annual interest.

A total of 15 states and the District of Columbia have already adopted laws cracking down on payday lending. Four more states considering legislation, including Colorado and Virginia, are watching the ballot issues in Ohio and Arizona.

“It’s fair to say that a lot of people are going to look at it, and that a lot of people are going to draw conclusions on it,” said Uriah King, policy associate at the Center for Responsible Lending in Durham, N.C., a group that lobbies against payday lending. “Ohio is a bellwether state, so that, coupled with the ballot referendum, would make a powerful argument.”

The outcome of the initiatives in Ohio and Arizona will determine whether the payday industry believes it can go around lawmakers who have rebuffed them and present its case successfully to voters, said David Higuera, political director for the campaign opposing the industry ballot issue in Arizona.

“I do believe if they’re successful here they will go to many more state ballots next time,” Higuera said.

In a typical payday lending transaction, someone wanting a loan goes to a check-cashing company and writes a check. The company gives the person cash, minus a fee, and agrees not to cash the check until his or her payday. In effect, the borrower gets a short-term loan for a fee.

Ohio Gov. Ted Strickland signed in June a law that restricts the annual percentage rate that lenders can charge to 28 percent, and limits the number of loans customers can take to four per year. Payday lenders had been charging about $15 for every $100 borrowed on a two-week loan, which worked out to an annual interest rate of 391 percent.

Strickland, House Speaker Jon Husted and Senate President Bill Harris have come out against the payday industry’s efforts. But the payday industry will do what they will not: spend a lot of money on television advertisements to influence public opinion.

“It’s been a very challenging process, but we are working very hard,” said Kim Norris, spokeswoman for Ohioans for Financial Freedom, the industry-backed group trying to get the issue on the ballot.

The payday industry has not yet gotten the required number of signatures certified to place the issue on the ballot in Ohio. But those fighting the industry efforts fully expect that they will.

Lenders have argued that payday loans are an individual financial choice that shouldn’t be taken away by lawmakers, running a series of ads that trumpet personal responsibility over government mandates. They have argued it’s a viable option for someone in a bind who needs quick cash to take care of an unforeseen problem, such as car trouble.

Opponents have said the industry’s business model is reliant upon trapping customers in a cycle of debt so they take one loan out after another to pay for the principle and interest on the previous loan.

Politicians elsewhere are waiting for voters to weigh in.

In Colorado, a bill to cut the interest rate lenders can charge to 45 percent passed out of the House by a few votes this year but was watered down _ and then killed _ in the Senate.

“We had a tough fought battle last session and I said I’m probably bringing something back next year so I’ll be watching what happens in other states,” said state Rep. Mark Ferrandino, a Denver Democrat.

© 2008 The Associated Press