Nearly nine years after state lawmakers passed a crackdown on payday loan businesses and voters upheld that law, people are still borrowing from quick-cash lenders, and they’re still charging huge interest rates. And now 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 among the more than 650 quick-cash lenders operating here – and charging interest rates up to 591%, 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, the 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 number one at. We ought to be embarrassed by it.”
Potts took the rare step of speaking out for this bill, which was introduced recently but been discussed for weeks. It would cap interest rates that payday lenders can charge at 28% plus monthly fees of 5% on the first $400 – which comes out to $20. And it would also cap monthly payments at 5% of the borrower’s monthly income. Potts says he hopes it 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 $1000 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.”
Potts concedes that payday lenders provide a service – one that’s needed 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,” said Pat Crowley with the Ohio Consumer Lenders Association. He says the industry’s customers are happy with the products it offers, and that 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.”
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 here 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, and said: “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.” 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.”
Rep. Michael Ashford (D-Toledo) and Rep. Marlene Anielski (R-Walton Hills) 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 Rep. Kyle Koehler (R-Springfield). House Speaker Cliff Rosenberger (R-Clarksville) 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.