Flanking the McDonald’s on U.S. 40 on the east side of downtown Springfield is the promise of quick cash from a half dozen payday lenders. Another six shops offering payday loans dot the strip malls on the the west side of town too.
“I noticed them in my community and suspected it wasn’t a great deal,” said the Rev. Carl Ruby of the Central Christian Church in Springfield. “And when I dug into it, I was appalled.”
Although Ohioans voted in 2008 to cap payday loan rates at 28 percent, lenders sidestep those limits and charge up to 591 annual percentage rates on short term loans.
Ruby and a statewide coalition of faith leaders want lawmakers to close the legal loopholes used for the past nine years by payday lenders and install more consumer-friendly regulations. State Reps. Kyle Koehler, R-Springfield, and Michael Ashford, D-Toledo, introduced House Bill 123 on March 9, but the bipartisan legislation has yet to receive its first hearing.
After more than nine months of lobbying and advocating, Ruby and his colleagues are wondering if campaign contributions from payday lenders are what stand in their way. Since 1996, the payday lending industry and its lobbyists have contributed $1.55 million to the campaigns of state and federal candidates in Ohio — 85 percent of it going to Republicans, according to Ruby’s research. Roughly $76,000 in campaign contributions have been made to lawmakers on the House committee assigned to hear the bill, according to the research.
“We are doing all that we can to move (Ohio House Speaker Cliff Rosenberger) to act. I can’t think of any reason not to act on this, except for lobbyist influence and campaign finance contributions,” Ruby said. “This is common sense. There is clearly a need for it.”
Rosenberger spokesman Brad Miller said, “Campaign contributions do not determine the fate of legislation, nor do they dictate the way bills are reviewed and vetted.
The statewide coalition is pressuring Rosenberger to move the bill. They’re bringing pastors from his district to Columbus to meet with him and convinced Clinton County commissioners — Rosenberger’s home area — to urge the Speaker to hold a hearing. And Ruby said a rally is being organized for Nov. 1 at the Ohio Statehouse.
Miller said payday lending has been discussed. “All parties, including those offering loans and those seeking loans, have had input throughout this process, and the Speaker will continue working with the bill sponsor and the caucus to determine the desired path moving forward,” Miller said.
Payday lenders, who are members of the Ohio Consumer Lenders Association, are pushing back against House Bill 123 and saying that government shouldn’t restrict private-sector lending options.
“Calls by consumer groups and legislators to choke off access to credit to under-banked people in this country shows a lack of understanding of middle class Americans and is blatant discrimination,” said Patrick Crowley, spokesman for the association, in a written statement. “Ohio families know best what credit options fit their personal financial situation. They want choices and access to credit. What they don’t want or need is a one-size-fits-all approach that reduces their ability to manage their own finances and spending.”
Typically with payday loans, consumers borrow $100 to about $1,500 and must pay it back within 30 days, either through a post-dated check or automatic withdrawal. They pay interest and fees that can boost the annual percentage rate above 400 percent. Often, borrowers can’t make the full payment when it comes due, so they extend the loan, accruing more interest and fees.
Ohio does not have a good track record of restricting high-interest-rate lending.
Ohio law banned payday loans for more than 50 years but in 1995 the Legislature approved the Pay Day Loan Act, which requires state licensing and exempts payday lenders from the state’s usury laws.
By 2008, lawmakers passed bipartisan legislation to curb payday loan rates and cap them at 28 percent APR. The industry put the legislation up for a referendum and 63.6 percent of voters decided to keep the new limits.
But lenders sidestepped the law by getting licenses to operate as credit service organizations, which don’t face fee limits. Those organizations can issue loans under the Ohio Mortgage Lending Act and the Ohio Small Loan Act.
Koehler and Ashford’s bill would limit monthly payments on the loans to no more than 5 percent of the borrower’s gross monthly income, cap annual interest rates at 28 percent and limit fees to $20.
Koehler said opponents tell him Ohio should offer more financial literacy education to consumers and let free market forces determine whether payday lenders stay in business. His counter argument is that offering consumer education classes to someone in financial distress is like offering swimming lessons to someone drowning in a storm.
“If we don’t get something done and (payday lending) gets back on the (statewide) ballot, it’ll shut down payday lenders because the voters hate this,” Koehler said. “If this is on the ballot, there is a good chance payday lenders will disappear in Ohio. There are people making noise about it for the 2018 ballot. I want to fix this now.”
The Small-Dollar Loan Project of The Pew Charitable Trusts reported last year that one in 10 Ohioans have taken out a payday loan, Ohio borrowers are charged up to four times more than borrowers in other states and two-thirds of the 650 payday loan stores are operated by out-of-state companies.
A short history of payday lending in Ohio
Early 1900s: Ohio Supreme Court upholds municipalities authority to regulate “salary loans,” which are the precursor to payday loans.
1943: Ohio outlaws short term, lump sum, paycheck-based loans and allows longer-term installment loans.
1995: Ohio General Assembly approves the Pay Day Loan Act, which requires state licensing and exempts payday lenders from the state’s usury laws. Within 10 years, payday lending stores in Ohio balloon from 107 to 1,562.
2008: Ohio General Assembly approves the Short Term Loan Act, which puts a 28 percent APR interest cap on loans, requires terms to be no less than 31 days and limits loan amounts to no more than 25 percent of the borrower’s gross monthly income.
November 2008: The industry tries to block the law, but 64 percent of Ohio voters say yes to the Short Term Loan Act in a statewide referendum.
2009 to current: Lenders sidestepped the law by getting licenses to operate as credit service organizations, which don’t face fee limits, and issue loans under the Ohio Mortgage Lending Act and the Ohio Small Loan Act.