Legislators should listen to Ohioans who want payday lenders reined in
There was a day when usury wasn’t defended in polite society.
People recognized that charging unconscionable or exorbitant rates for loans made to the poorest of people was unfair, immoral and counterproductive in a civil society.
But in a resurgent laissez-faire era, annual interest rates of 200, 400 and even 600 percent no longer offend the sensibilities of a lot of people – including, it seems, far too many members of the Ohio General Assembly. If desperate poor people get caught up in a cycle of borrowing and re-borrowing money at rates that would make Shylock blush, well, it’s their own fault for not being more careful consumers.
There is a bill slowly – far too slowly – making its way through the Ohio Legislature to remove loopholes that the state’s 650 payday lenders have taken advantage of since 2008, when legislators approved a 28 percent cap on interest rates charged in the state. Ohio voters overwhelmingly rejected an attempt by the lenders to have the law overturned.
But the lenders found a work-around by redefining themselves as second-mortgage lenders, which allowed them to operate outside the purview of the payday law. Ever since, Ohio’s short-term borrowers have been on the hook for as much as 591 percent in annual interest – the highest allowable rate in the nation.
It is ironic that in a state where voters tried to do the right thing nine years ago, payday lenders have been able to do their worst. Three years ago, the Ohio Supreme Court ruled that what the lenders were doing was legal, but at least two justices admonished the General Assembly for not correcting an obvious injustice.
It wasn’t until May that House Bill 123, co-sponsored by Republican Rep. Kyle Koehler of Springfield and Democratic Rep. Mike Ashford of Toledo was introduced. And it took another six months until the bill got its first hearing in the Government and Accountability Oversight Committee last week.
Finally, there’s some hope for relief, with the bill receiving support from the Ohio Job and Family Services Directors Association, Ohio Council of Churches, Catholic Conference of Ohio, Ohio Poverty Law Center, the Ohio Community Development Corporations Association and veterans service groups that are tired of seeing veterans tied to ill- advised contracts that extract higher fees every month.
The other side, though, has the kind of influence that only money can buy. Payday lenders collect an estimated $200,000 in interest a day in Ohio. Since 1995, when the Ohio Pay Day Loan act exempted payday lenders from the state’s usury laws, the industry and its lobbyists have contributed $1.5 million to the campaigns of state and federal candidates in the state. About $1.2 million of that went to Republicans.
The Rev. Carl Ruby of the Central Christian Church in Springfield, Rep. Koehler’s district, has become a vocal advocate for sensible legislation to control payday lending. He disputes claims that regulating the industry would kill it, depriving low-income lenders of any access to emergency loans. Other states have managed to protect people from usurers without driving short-term lenders from the market place.
Payday lenders may not have the kind of profit margins that support the industry’s current level of lobbying and campaign donations, but they’ll survive.
And the hard-working poor and middle class will still have somewhere to go when they’re in a pinch. The difference will be that their loans will be limited to an annual interest rate of 28 percent, monthly handling fees will be limited to a maximum of $20 and they won’t get roped into roll-over contracts that they clearly can’t afford.
Average cost to borrow
A Pew Charitable Trust study found that the average cost to borrow $300 for five months from a payday lender in Ohio is $680, compared with $172 in Colorado.
Ohio legislators should do themselves, their constituents and even payday lenders a favor and stop dragging their feet on payday loan reform legislation. If the General Assembly doesn’t act, others will.
If the issue is left to the voters through a ballot initiative, the language could be so strident that payday lenders would be driven out of business.