Payday-loan law changes slow to gel
A number of Ohio lawmakers say they recognize the need to change Ohio’s failed payday lending law, but questions remain about what steps they are willing to support.
No payday lenders in Ohio are registered under the Short Term Loan Act that lawmakers approved and voters overwhelmingly upheld in 2008. More than 600 stores across Ohio are using other sections of law, not designed with payday lenders in mind, and critics
say they are charging annual percentage rates of more than 600 percent to borrowers desperate for cash.
“I was not sent here to represent businesses that are mostly owned by outof-state entities that are charging Ohioans considerably more than they charge consumers in other states because of a loophole,” Rep. Kyle Koehler, R-Springfield, told a House committee on Wednesday. “I was sent here to represent the citizens of Ohio.”
Koehler and Rep. Michael Ashford, D-Toledo, hope Wednesday’s hearing starts a process to a state payday law that lenders rendered ineffective.
The bill would allow short-term lenders to charge a 28 percent interest rate plus a monthly 5 percent fee on the first $400 loaned. Monthly payments could not exceed 5 percent of a borrower’s gross monthly income.
Payday critics say the short-term loans trap people in a debt cycle, where borrowers repeatedly need new loans to pay off old ones.
Pastor Carl Ruby of the Central Christian Church in Springfield, part of a coalition backing the bill, said he has seen the pain caused by payday loans, including a woman contemplating suicide when a $500 loan turned into thousands in debt.
“I think the morality and the facts are on our side,” he said.
“People who go to payday loan centers are desperate. They don’t understand the cost and fees they’re getting into.”
The bill is going to cut off access to credit, said Pat Crowley of the Ohio Consumer Lenders Association, which represents payday lenders. “There’s no alternative for many of these people.”
The bill is based on a law in Colorado, where reform supporters say plenty of payday shops still operate. Top House Republicans are signaling that amendments are likely.
“There is a desire to make some changes to the payday lending law,” said Rep. Kirk Schuring, R-Canton, the No. 2 House leader. “How that’s going to look, I don’t know yet.”
Rep. Bill Seitz, R-Cincinnati, said he’s not convinced that the bill is the right approach.
“We all acknowledge it’s an issue, but the question is what do you do about it,” he said.
Some ideas, Seitz said, are to codify a new federal rule that prohibits loans with terms of less than 45 days. There also is talk of a payday tax to create a financial literacy fund.
The issue also may find support in the Senate, especially if a coalition supporting the bill moves toward a ballot issue.
“I think we’d be interested in looking at potential reforms in that area,” said Senate President Larry Obhof, R-Medina. “Obviously we’ve heard about the potential for a ballot initiative as well, and my preference is always that if something can be handled legislatively, it ought to be.”
Payday reform is politically challenging.
The payday industry has given significant campaign money. The issue also divides both parties — antiregulation Republicans and Democrats worried about cutting off credit are reluctant to support changes.
The Cleveland Clergy Coalition, a group of 85 African-American churches and 10 religious organizations, opposes the bill. Meanwhile, the Cleveland Branch of the NAACP has endorsed it. A key disagreement is whether the bill would cut off credit.
“In the African-American community, there are no financial opportunities because the banks have left us,” said Pastor Aaron Phillips of Sure House Baptist Church. “Many times people use this as a tool to pay their rent, their car note or to keep their lights on. If they don’t have this, they won’t have anything.”
Without payday lenders, people will resort to loan sharks, Phillips said. “The (payday) fees are a lot less than what you’d get out on the streets.”
Danielle Sydnor, a member of the Cleveland NAACP’s executive committee, said she agrees that there is a need for small loans, but the current industry is “preying on our neighborhoods.”
And most of the same lenders operating in Ohio, Sydnor said, also are operating in other states with lower fees.
“Will they all leave? Absolutely not,” she said. “It will put our citizens in a better position because you’ll have a few places with better processes in place, and there won’t be six or seven trying to get you at every turn.”