New rules issued this past week by the federal Consumer Financial Protection Bureau are meant to rein in payday and auto title lenders. The rules require enhanced credit checks for some loans and cooling off periods after three loans in a row to a single borrower.
According to a study last year by the Pew Charitable Trusts, customers of payday lenders in Ohio pay the highest costs of any state. According to researcher Alex Horowitz, that’s because of the laws regulating the companies here.
“In Ohio, payday and auto title lenders are not operating under the intended statute. They’re using a loophole that lets them operate as loan brokers. That’s why they can charge interest rates in excess of 400 and 500 percent and that’s also why they can evade the federal protections issued yesterday.”
A 2008 law capped yearly interest rates at twenty eight percent. But the state supreme court has upheld the loophole used by lenders. Legislation currently in front of the state assembly is meant to close it. Horowitz says right now the new federal rules aren’t likely to help lower costs in Ohio.