Strict Interest Rate Cap Critical Issue In Payday Lending Reform Debate

Apr 5, 2018

A battle is brewing over payday lending in Ohio. There are more than 650 storefronts in the state but the industry argues that a new bill threatens to shut them all down. However, consumer advocates say payday lending has been skirting around state law for years to prey on desperate borrowers. 

“It just snowballed so bad and I couldn’t get out of that hole,” said Denise Brooks, a single mother from Cincinnati, who was desperate to pay her car insurance bill. So she took out a loan from a payday lender. She continued, “I couldn’t pay my bills cause I owed them and I couldn’t borrow any more I was maxed.”

Brooks says that loan only caused more problems.

“You’re thinking temporarily just get me over this hump but with the interest rates and everything it’s not just getting me over this hump,” said Brooks.

That was eight years ago. Brooks, who was able to get out of the debt with some help from family, is sharing her story to make sure others don’t become what she sees as victims of predatory lending. A Pew Charitable Trust study in 2016 showed Ohio has the highest payday lending interest rates in the country, topping out at 591%. Brooks and a group known as Ohioans for Payday Loan Reform are calling for strict interest rate caps at 28%, and for closing any loopholes around that cap.

Those regulations are in a House bill that has seen its share of starts and stops in the past year. Speaker Pro Tem Kirk Schuring says he wants to help move the bill forward.

“The payday lenders in many cases put these folks in a position where they’re entrapped and they can’t get out of their loan requirements,” said Schuring. But he's recommending changes to the bill that could steer away from the strict interest rate caps. They include:

- Refusing a new loan if a borrower has an active loan

- Requiring a 3-day waiting period before taking a new loan

- Allowing a 3-day right-to-rescind a loan

- Creating a payment plan through interest free payments

- Finding a way to bring other groups into the payday lending game, such as credit unions.

Schuring says these changes would create avenues for borrowers to get out of debt and avoid high-interest rates.

“More options, more competition and if there’s competition that usually drives down costs,” Schuring said.

Carl Ruby with Ohioans for Payday Loan Reform says these changes water down the original bill.

“We’re not at all willing to go into a situation where there’s no cap at all,” said Ruby.

Schuring says these suggestions are just a starting point to bring both sides to the table and that the strict interest rate cap is still an option.

Patrick Crowley is with the Ohio Consumer Lenders Association, which represents the payday lending industry. He says there’s a lot of misleading information in this debate - for example, he notes those huge interest rates are calculated annually, but most loans are set for a period of two to four weeks.

"I could say the same thing about if I wanted to look at an interest rate of when I take -- an ATM -- I take $20 bucks out and I get charged $2 bucks. I mean what would the APR be on that, it would be exorbitant,” said Crowley.

He says stories like the one told by Denise Brooks are rare, adding that he takes issue with the accusation that payday lenders prey on the desperate.

“That’s a ridiculous talking point by the people who want to put us out of business for whatever reason. The service is available because people need it and people use it. There’s nothing predatory about it we’ve done studies, we’ve done polling, our customers know us, they like our service that’s why we’re in communities because people use it. The market speaks,” Crowley said.

And the industry has lots of customers in Ohio. The Pew study says around a million people, or 1 in 10 Ohioans, has taken out a payday loan.

Carl Ruby, who’s also the pastor at Central Christian Church in Springfield, says people in his community are driven to depression and even suicide because they can’t climb out of debt. Ruby argues that the reforms proposed in the original House bill are sensible.

“They’re trying to scare people into believing that all access to emergency cash is going to go away if we impose any regulations at all and the data just shows that that’s not true,” Ruby said.

Critics note the payday lending industry is a prolific donor to political campaigns, giving more than $1.6 million in contributions in the last nine years.

Ohioans for Payday Loan Reform are working on putting a measure on the November ballot if lawmakers don’t move on the bill.