Softening payday-loan bill criticized

A proposed rewrite by the Ohio Senate’s Republican leadership of a Housepassed payday-lending bill drew swift criticism from consumer advocates as a giveaway to the politically influential industry.

Although Sen. Matt Huffman, R-Lima, has not fully worked out how much the state should allow shortterm, high-cost lenders to charge borrowers — only that he wants an annual percentage rate no higher than 360 percent — he outlined proposals on Thursday that, he said, will add consumer protections and help people avoid a debt trap.

“If you put in place what’s currently in House Bill 123, there will be almost no lenders,” Huffman said, siding with the industry argument that the bill would not allow them to charge enough to operate.

But Alex Horowitz, senior research officer with the Pew Charitable Trusts, a top advocate for tighter paydaylending regulations, said Huffman’s rewrite of the bill would fail to significantly lower borrowers’ costs, provide affordable payments or give enough time to repay the loans.

Horowitz said Huffman’s plan would eliminate key provisions in the current bill, such as capping fees and interest at no more than 50 percent of the loan amount and enacting earnings-based limits on repayment plans.

Instead, Horowitz said, some of the new proposals are already offered by the industry, such as interest-free payments to help a struggling borrower pay off a loan, which Huffman would allow only if the borrower completed a consumer-finance course.

Other suggestions, such as a database of loans to ensure that a borrower has no more than $2,500 in payday loans at a time, have failed to help borrowers in other states, Horowitz said.

“It would absolutely decimate the budgets of Ohio families. That’s not reform,” Horowitz said after a 3½-hour Senate Finance Committee hearing Thursday. Members of a coalition pushing a payday-lending ballot issue in 2019 expressed a similar sentiment.

“I am here today because the Bible tells me that one mark of true Christianity is that we stand with the poor and against those who oppress them,” said the Rev. Carl Ruby, a coalition leader from Springfield.

Pew Charitable Trusts has studied payday lending across the nation and found that Ohio lenders charge the highest rates. Advocates for consumers and the poor have argued for years that the loans, which typically must be paid off in two weeks, put desperate borrowers in a cycle of debt in which they must repeatedly take out new loans to pay off old ones.

Huffman, who voted against bills regulating payday lending in 2008 and 2010, also proposed that no loan term be shorter than 30 days and that a borrower have 72 hours to cancel a new loan.

“How much do we want to restrict this market, knowing there are certain people who aren’t going to be able to get a loan because the folks lending to them are going to say, ‘The risk is too high for what the law allows me to charge’?” Huffman told his colleagues. “That is the sweet spot in all of this.”

Ashish Gandhi, a payday-loan store owner in Cincinnati, said he couldn’t survive on the current bill’s 28 percent interest rate plus a monthly fee of up to $20, calling the terms a “joke.”

“I know the truth behind this law. The goal is to put us out of business,” he said, criticizing Pew as “fancy academics” who have no idea how to run a business.

Supporters said the bill is similar to a law in Colorado, where payday lenders still operate. Gandhi argued that the Colorado law allows for significantly higher fees, but Horowitz said that’s often not the case.

“There seems to be severe misunderstandings about what other states have done,” Horowitz said.

Horowitz did tell the committee that he would not object if members increased the maximum monthly fee to $25, or even $30.