Nine years after Ohio lawmakers and voters approved restrictions on what payday lenders can charge for short-term loans, those fees are now the highest in the country.
The Ohio Payday Loan Act of 2008 was ineffective. The question now is whether lawmakers are ready to fix it.
Lenders avoided the law’s 28% loan interest rate cap by simply registering under different sections of state law that were not designed for payday loans but allowed them to charge an average annual interest rate of 591%.
Low- and middle-income Ohioians who borrow $ 300 from a payday lender pay an average of $ 680 in interest and fees over a five-month period, the typical length of time a borrower is in debt on what is supposed to be. be two loan a week, according to research from The Pew Charitable Trusts.
Michigan, Indiana, and Kentucky borrowers pay $ 425 to $ 539 for the same loan. Pennsylvania and West Virginia do not allow payday loans.
In Colorado, which passed a payday loan law in 2010 that Pew officials would like to see replicated in Ohio, the fee is $ 172 for that $ 300 loan, an annual percentage rate of about 120%.
The Colorado-style regulations are part of a new bipartisan bill that aims to lower fees charged and give Ohio borrowers more time to repay loans.
“Local community organizations know that when payday lenders start to proliferate, it’s a sign of a struggling community,” said Nick Bourke, director of the Pew Small Dollar Lending Project.
Representatives Kyle Koehler, R-Springfield, and Michael Ashford, D-Toledo sponsor House Bill 123. It would allow short-term lenders to charge a 28% interest rate plus a 5% monthly fee on the first 400 $ loaned – a Maximum Fee of $ 20. The required monthly payments could not exceed 5 percent of a borrower’s gross monthly income.
Payday lenders would also be subject to the Short Term Loans Act, instead of letting them operate as mortgage lenders or credit service agencies.
Koehler said local religious leaders started talking to him about the issue more than a year ago.
“As state legislators, we need to be careful of those who are suffering,” he said. “In this case, those who are hurting go to payday lenders and are taken advantage of.”
Unlike past salary talks which have focused on whether to regulate the industry into oblivion – a thorny debate that divides both Democrats and Republicans – Koehler said the bill would leave the industry to remain viable.
“There are people who need this kind of credit,” he said.
After Colorado passed its law in 2010, more than half of the state’s convenience stores closed. But those who stayed saw their activity increase, Bourke said, and people who need a short-term loan still have plenty of access.
Some national lenders operating in Ohio also have stores in Colorado. Borrowing $ 300 for five months from Ace Cash Express, for example, costs a borrower $ 879 in Ohio, but $ 172 in Colorado, Bourke said.
“These companies charge Ohioians five times as much… just because the law allows them to,” said Bourke, estimating that the Ohio bill would save borrowers $ 75 million a year.
Ohio has about 650 payday stores, including title lenders, that use car titles as collateral.
“They’re set up so you can’t really pay off the loan,” Koehler said. “The idea that you have to pay it off in two weeks is the root of most of the problems.”
Koehler said his colleagues asked him repeatedly: Didn’t we take care of this in 2008? The Short-Term Loans Act created that year limits payday loan interest rates to 28%, but no payday lender operates under this section of the law.
Only nine of the current 99 members of the Chamber were in office in 2008.
“There isn’t any kind of natural constituency that is fighting to solve this problem, but there is a very aggressive payday lending lobby that is fighting to maintain their status,” said Bourke.
Since 2010, the breakdown industry has donated more than $ 1.5 million to Ohio campaigns, mostly Republicans. This includes $ 100,000 to a 2015 bipartisan legislative redistribution reform campaign, making it the largest donor.
New restrictions “will only hurt the very consumers that the legislation is designed to help by eliminating credit options and exposing consumers to more expensive options such as unregulated off-shore internet lenders, overdrafts, fees shutdown of utilities or worse – illegal lending activities, ”said Patrick Crawley, spokesperson for the Ohio Consumer Lenders Association.
President Cliff Rosenberger, R-Clarksville, said he was meeting with various parties to learn more about the need for the bill.
Minority Parliamentary Leader Fred Strahorn D-Dayton added: “I’m all for reforming it to make it a good product for the people, but there are too many underbanked and underserved people. We need to focus on making good financial products and not get caught up in people’s bankruptcy. “