High interest loans cripple Ohioans
State rates remain expensive
7/21/2015Thousands of financially vulnerable Ohioans take out high-cost, predatory loans each year. These loans have interest rates so high that borrowers may never be able to pay them back, trapping many borrowers in an unending cycle of debt.
Despite 2008 reforms in Ohio which placed a cap on payday loan interest rate at 28 percent, Ohioans continue to pay some of the most expensive loan rates in the country, a Pew Charitable Trust study shows.
The business of lending to the low-income is lucrative for companies and these businesses don’t plan to give up without a fight, consumer protection experts say.
Ohio has more than 1,300 payday-lending stores and an additional 600 title-loan companies, where people receive a short-term loan by using their vehicles as collateral. One in 10 Ohioans has used a payday loan, according to Pew research.
“The research is very clear. Payday loans are not helping people. They are actually making their budgets worse,” said Nick Bourke, director of the Pew Charitable Trust’s Safe Small Dollar Loans Research Project.
The annual percentage rate is 591 percent for a two week payday loan in Ohio, because of a loophole in the short term lending act, that all payday lenders in Ohio are taking advantage of, he said.
“The payday lenders abandoned one type of license and they just started getting other types of licenses — mortgage licenses, credit service organization licenses — that the law had not been written to apply to, and so they are making the same loan at the same high interest rate. They’ve avoided the interest rate cap,” Mr. Bourke said.
The Ohio Consumer Lender’s Association said in a statement that its members are short-term lenders regulated by the Ohio Department of Commerce and other state agencies that fully comply with Ohio’s Small Loan and Mortgage Loan acts.
“These laws are certainly not ‘loopholes.’ Regarding interest rates, short-term advances are two-week loans — not annual loans. Industry critics often cite payday advances as having an annual percentage rate of 400 percent to 500 percent, which is misleading. The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15 percent interest rate for a two-week duration,” said association spokesman Pat Crowley.
The problem with these short term loans is that many borrowers can’t make the full payment when it comes due, so borrowers extend the loan for two more weeks, into several months, accruing more interest and fees, Mr. Bourke said.
The two-week “churning” of existing borrowers’ loans accounts for three-fourths of all payday loan volume, according to the Center for Responsible Lending.
Charles Cline of Dayton said he’s been stuck in the payday lending trap. He said he took out a $1,000 loan and ended up paying $1,600, because of extensions, fees, and interest.
“Trying to help yourself get out of a bad situation, you end up hurting yourself more,” Mr. Cline said. “They are preying on people that are poor, that are less fortunate, that need to get by throughout the week.”
The Ohio Supreme Court last month sided with payday lenders in a unanimous ruling that the state’s Short Term Lending Act did not bar payday lenders from using other lending licenses to issue payday loans.