Nearly nine years after Ohio lawmakers passed—and voters upheld— a crackdown on payday loan businesses, people are still borrowing from quick-cash lenders. And the lenders are still charging huge interest rates. Statehouse correspondent Karen Kasler says another proposal to regulate the industry is back before legislators.
Payday lending is big business. A Pew Charitable Trusts study of the industry in Ohio from December found 1 in 10 adults has taken out a payday loan from the more than 650 quick-cash lenders operating here. And the lenders are charging interest rates up to 591 percent, the highest in the nation.
“This is low-income, hard-working Ohioans that are being exploited at the highest rate in the United States. We ought to be ashamed of ourselves," said Joel Potts, executive director of the Ohio Job and Family Services Directors Association. "You know, in Ohio we love to be number one at everything, but this is not the thing we want to be No. 1 at. We ought to be embarrassed by it."
The Ohio Job and Family Services Directors Association took the rare step of speaking out in support of this bill, which has been discussed for weeks but was only introduced recently. The bill would cap interest rates that payday lenders can charge at 28 percent, plus a monthly fee of 5 percent on the first $400, which comes out to $20. And it would also cap monthly payments at 5 percent of the borrower’s monthly income.
Potts says he hopes the bill can prevent situations like this: “For somebody who goes in to get quick cash on $300 and before you know it, they’ve paid back over $1,000 just to be able to do that, and then they often will end up at another lender to get a loan to pay back that amount and then get a third loan to do it.”
A valuable service?
Potts concedes that payday lenders provide a necessary service for people who need money quickly but don’t have any savings, credit, or sometimes even bank accounts. And that’s a point hammered home by the industry.
“Any new legislation that imposes restrictive caps or onerous regulations will do nothing but harm the very consumers the legislation is designed to assist," says Ohio Consumer Lenders Association spokesman Pat Crowley.
Crowley says the industry’s customers are happy with the products it offers and making changes that would drive payday lenders out of business wouldn’t help those low-income people.
“By eliminating credit options, exposing consumers to more expensive options such as unregulated offshore internet lenders, overdrafts, utility shutoff fees or more, even illegal lending activities, proposing public policy that restricts credit access without providing a realistic alternative puts hundreds of thousands of Ohio families at risk," said Crowley.
The Pew study shows most Ohioans who use payday lenders are working and making around $30,000 a year. And they’re paying more to these payday lenders than borrowers in other states getting loans from the same companies. For instance, an Ohioan who borrowed $300 for five months would pay interest and fees of $680, but someone in Colorado would pay $172 for the same loan.
Lisa Hamler-Fugitt heads up the Ohio Association of Food Banks. “What this tells us is, poverty is big business. This is an industry that has figured out how to exploit the most vulnerable in our society,” she said.
Finding a balance
But Crowley says payday lenders offer a variety of products with different terms and fees, so a one-size-fits-all crackdown isn’t fair to those who want to continue to work with the borrowers who need them.
Capping interest rates for payday lenders may sound familiar. That’s because lawmakers did just that in 2008. Payday lenders went to the ballot and spent $20 million on a campaign to repeal that law.
But voters supported it 2-1. So lenders simply found another section of the law under which to operate – an action some lawmakers encouraged, perhaps thinking lenders would offer cheaper loans, but also to keep an industry that’s been generous to candidates in Ohio.
Crowley hints the industry isn’t going away because of this bill.
“We’ll wait to see what happens with that. But we want to continue to operate and continue providing credit to our customers.”
Democrat Michael Ashford of Toledo and Republican Marlene Anielski of Walton Hills near Cleveland had been working on the House bill, but Anielski dropped her name from it, saying she needed to focus on a suicide prevention bill. Knowing he’d need a Republican to push it, Ashford then found support from Republican Kyle Koehler of Springfield. House Speaker Cliff Rosenberger didn’t have much to say about the bill other than it’ll get looked over carefully in hearings and he’ll meet with interested parties on both sides.