It’s past time for lasting reform in payday lending
A new study by the Pew Charitable Trust brands Ohio with the sordid claim to shame of leader of the pack nationally in brazen consumer-lending rip-offs.
The study, released last week, provides a revealing snapshot into the scope of many irreputable payday lending operations and their shockingly unfair, costly and anti-consumer practices toward the most financially vulnerable residents in our state. Among them:
Roughly 1 million Ohioans have taken out a payday loan from any of more than 650 such questionable storefront businesses.
No payday or auto title lenders are licensed under the Short-Term Loan Act, which passed the Ohio Legislature in 2008 in an attempt to curb payday loan rates.
Payday-loan prices in Ohio rank as the country’s most expensive, with a typical annual percentage rate of interest nearing 600 percent.
Even though those findings illustrate clear predatory loan practices, they are hardly surprising. Ohio and other states have been battling such operations for years, but many crafty players in the short-term loan industry have managed to find cunning ways to uncover loopholes and leap right through them in order to continue to ply their most ignominious trade.
For example, that 2008 law restricted payday-loan interest rates to 28 percent and imposed a $500 maximum loan limit and minimum 31-day payback period to protect consumers. Later that year, voters resoundingly spoke their minds in rejecting an industry-backed effort to repeal the law.
Lenders then chose to coyly circumvent the law by making loans under another section of law, the Mortgage Loan Act, that has no cap on interest rates and allows loan repayment to be demanded in a single lump sum.
Courts in Ohio have chipped in their 2 cents as well. In reversing an appellate decision in 2014 that would have outlawed the workaround by payday lenders, Ohio Supreme Court Justice Judith French admonished the state Legislature for not taking any action to preclude the practice of payday-style lending under other state lending laws.
Justice Paul Pfeiffer was more blunt. “Payday lending is a scourge ... [that] had to be eliminated or at least controlled” by the General Assembly.
Now, two long years later and in the shadow of the disturbing findings of the new Pew report, a responsible state representative is stepping up to the plate.
State Rep. Marlene Anielski, a Republican from Walton Hills near Cleveland, said she plans to seek rigid and lasting reform when the new session of the Legislature convenes in January. Her plans demand the full support of all of her colleagues, including members of our new Mahoning Valley delegation.
“It’s time to close those loopholes because they impact a wide cross-section of Ohioans – rural, urban, white, black, veterans and others,” Anielski said. They hurt the poorest of the poor most dramatically, and with Youngstown ranked as the poorest city in Ohio in a December 2016 Census report, the adverse impact on the Valley is disproportionately profound.
The Cuyahoga County state lawmaker is wisely looking westward for guidance. She believes Ohio could follow the lead of Colorado, which has socked it to payday lenders by requiring all short-term loans to be repayable over a longer period of time and at substantially lower interest rates.
The recent Pew study backs up her logic. According to its findings, the average cost to borrow $300 for five months from a short-term lender in Ohio is $680, compared with only $172 in Colorado. The average Annual Percentage Rate of interest in Ohio stands at 591 percent compared with only 117 percent in the Rocky Mountain State.
It is now incumbent upon Anielski and her colleagues to follow through with a solid proposal that is sealed tightly against the skillful trickery of the payday loan industry. They must also resist any temptation from the deep-pocketed lobbyists the industry has used to put the kabosh on reform in earlier legislative sessions.
As Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, asks, “Are they [lawmakers] going to listen to the will of the voters or the will of the payday lenders?”
The answer for all conscientious state legislators who want to rip apart Ohio’s debt trap should be obvious.