A battle is brewing for payday loans 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 loans have circumvented state law for years to prey on desperate borrowers.
Denise Brooks, a single mom from Cincinnati, was desperate to pay her car insurance bill. So she took out a loan from a payday lender.
“It snowballed so much that I couldn’t get out of that hole,” Brooks said. “I couldn’t pay my bills because I had to and I couldn’t borrow anymore, I was maxed out.”
Brooks says this loan only caused more problems.
“You’re temporarily thinking of getting me out of this bump, but with interest rates and everything in between, it doesn’t just make me get over that bump,” she said.
It was eight years ago. Brooks, who has managed to get out of debt with the help of her family, shares her story to make sure others don’t become what she sees as predatory loan victims.
A 2016 Pew Charitable Trust study showed that Ohio has the highest payday loan interest rates in the country, reaching 591%. Brooks and a group known as the Ohioans for Payday Loan Reform are calling for strict 28% interest rate caps and filling any gaps around that cap.
These regulations are found in a House bill that has seen its share of starts and stops over the past year. Pro President Tem Kirk Schuring says he wants to help move the bill forward.
“In a lot of cases, payday lenders put these people in a position where they’re trapped and they can’t get out of their loan requirements,” Schuring said.
But Schuring recommends changes to the bill that could move away from strict interest rate caps. They understand:
- Decline a new loan if a borrower has an active loan
- Require a three-day waiting period before taking out a new loan
- Grant a three-day loan termination right
- Create a payment plan using interest-free payments
- Find a way to get other groups into the payday loan game, like credit unions.
Schuring says these changes would create opportunities for borrowers to deleverage and avoid high interest rates.
“More options, more competition and if there is competition that generally drives costs down,” says Schuring
Springfield Pastor Carl Ruby of the Ohioans for Payday Loan Reform said the changes watered down the original bill.
“We’re not at all prepared to go into a situation where there’s no cap at all,” Ruby says.
Schuring says these suggestions are just a starting point to bring both sides to the table and that tight interest rate caps are still an option.
Patrick Crowley of the Ohio Consumer Lenders Association – which represents the payday loan industry – says there is a lot of misleading information in this debate. For example, he notes that these huge interest rates are calculated annually, but most loans are fixed for a period of two to four weeks.
“I could say the same thing if I wanted to look at an interest rate when I take – an ATM – I withdraw $ 20 and I’m billed $ 2,” Crowley says. “I mean, what would the APR be on that, that would be outrageous.
Crowley says stories like the one told by Denise Brooks are rare, adding that he disputes the accusation that payday lenders prey on the desperate.
“It’s a ridiculous argument from people who want to bankrupt us for whatever reason. The service is available because people need it and people are using it, “Crowley said.” There’s nothing predatory about it, we’ve done studies, we’ve done surveys, our customers know us, they like our service, which is why we are in communities because people use it. The market speaks.
A large clientele
And the industry has a lot of customers in Ohio. The Pew study indicates that about 1 million people – or 1 in 10 Ohioans – have taken out a payday loan.
Ruby says people in her community are driven into depression and even suicide because they can’t get out of debt. Ruby argues that the reforms proposed in the original House bill make sense.
“They’re trying to make people believe that all access to emergency money is going to go away if we impose regulations and the data just shows that’s not true,” Ruby said.
Critics note that the payday loan industry is a prolific contributor to political campaigns, giving more than $ 1.6 million in contributions over the past nine years.
The Ohioans for payday loan reform are working to put a measure on the November ballot if lawmakers don’t budge on the bill.