One out of 10 Ohioans have used payday loans to make ends meet, according to a local lawmaker looking to change a system that some people say has ruined their financial lives.
Supporters of payday lending say House Bill 123, which passed last week by the Ohio House to cap high interest rates and regulate minimum payments, will cut off access to money for up to 1 million people in the state.
For one side, short-term or payday lending is a legitimate business meeting a real need. For others, these low-dollar loans become expensive life-wreckers.
Cherish Cronmiller, president and chief executive of Dayton’s Miami Valley Community Action Partnership, supported HB 123. She calls these kinds of loans “predatory.”
“Essentially these corporations, they’re making their profits off the back of poor people,” Cronmiller said.
Consumers turn to these storefronts because sometimes they don’t trust regular banks or they don’t understand traditional bank options. They visit storefront lenders, see very generic terms — and agree to the terms.
“They’re paying all this interest, fees and fines,” she said.
Reform appears to be coming
Consumer advocates just won their biggest victory yet in the campaign to reform payday lending with HB 123, but now the fight continues in the Ohio Senate.
“We anticipate that payday lending industry lobbyists will continue their full-court press to stop this reasonable bill so that their clients can continue extracting millions of dollars from our communities,” said Michal Marcus of Ohioans for Payday Loan Reform. “Each day this issue goes unresolved, it costs Ohioans $200,000, so we hope the Ohio Senate will recognize the urgency of fixing Ohio’s broken payday loan laws sooner rather than later.”
For the payday lending industry, House Bill 123 in its current form is a no-go.
“HB 123 will completely eliminate access to legal, safe, and regulated credit for more 1 million Ohioans,” said Pat Crowley, spokesman for the Ohio Consumer Lenders Association, a payday and auto title loan trade group. “We continue to support reform to protect Ohio consumers from being gouged by unscrupulous companies, and we will work with legislators in the House and the Senate to pass legislation that does so without taking away the only regulated credit option the vast majority of our customers have.”
‘A horrible cycle’
Nationwide, some 12 million Americans take out high-cost, small-dollar loans each year, spending $9 billion on fees alone, according to The Pew Charitable Trusts.
Pew also says Ohio borrowers on average pay a 591 percent annual percentage rate, the country’s highest rate.
In 2015, Charles Cline of Dayton said he’d been stuck in the payday lending trap. He said he took out a $1,000 loan and ended up paying $1,600, due to extensions, fees and interest.
“Trying to help yourself get out of a bad situation, you end up hurting yourself more. They are preying on people that are poor, that are less fortunate, that need to get by throughout the week,” said Cline, adding he won’t be taking another payday loan.
Denise Brooks, 65, says she was at the brink of suicide about a decade ago.
Brooks, a Springfield home care worker, said she borrowed about $200 from a payday lender about a decade ago to pay off an overdue car insurance bill.
That took care of the insurance bill. But on the next payday, with her new debt looming, she didn’t have enough to cover both the debt and her other bills. At the time, she was making about $13 an hour.
Brooks says she had to go to a bank to withdraw her direct-deposit paycheck in cash, go to the payday lender, pay the lender — and re-borrow a new amount to meet her latest bills.
Fines and fees, meanwhile, rose higher. Payday lenders usually charge interest of $15 to $20 for every $100 borrowed, according to the Consumer Finance Protection Bureau.
She wasn’t alone. The bureau says 80 percent of payday loans don’t get paid back in two weeks.
“They make it really easy to roll them,” said Carl Ruby, pastor of Central Christian Church, who leads Ohioans for Payday Loan Reform, a citizens group.
The lenders let borrowers “roll” the debt forward, delaying payment until next month — and saddling borrowers with fees and interest.
“The average person ends up taking about seven loans a year if they take out one,” Ruby said.
“It was a horrible cycle,” Brooks said. “Every payday on my lunch hour, I had to run out and do that.”
She did that for nine months, afraid that a co-worker might see her visiting the lender’s storefront.
“I would be embarrassed to be going there,” Brooks said. “To think that somebody would see me going in and out of a payday loan place was humiliating.”
At one point, Brooks even drafted a suicide letter to her nearly grown daughter, “explaining to her why I was going to do that.”
Said Brooks: “I was digging a hole. I felt there was no way out.”
In an interview last week before Thursday’s passage of House Bill 123, Ruby said his group’s actions will depend on what the General Assembly does. If he and his compatriots feel final legislation offers adequate reform, they may not pursue a ballot measure that would amend the state Constitution.
“This is kind of to hold their feet to the fire,” Ruby said.
The group’s proposed amendment mirrors HB 123, sponsored by state Rep. Kyle Koehler, R-Springfield. The proposed amendment, like Koehler’s legislation, would cap payday loan interest at 28 percent, allowing up to $20 a month in fees and limiting payments to 5 percent of a borrower’s monthly income.
“This legislation will not shut down payday lending in Ohio,” said Koehler, who called it “common sense guidelines to protect consumers in Ohio who are working to make ends meet.”
In 2008, Ohioans voted in favor of keeping payday lending reforms lawmakers had adopted, which included capping annual percentage rates on loans at 28 percent.
But lenders sidestepped limits by issuing loans under a different section of Ohio lending law.
Today, when someone takes out a payday loan, a typical first payment is a third of someone’s monthly income, Ruby said. “They’re almost predetermined to fall behind. Most of them are borrowing money to pay monthly expenses.”
“They prey on people who are living right around the line of poverty,” he said. “They prey on working class people, retired people, disabled people.”
Based on Pew research, HB 123 would save the state of Ohio $75 million, Ruby said.
Brooks said she broke her own debt cycle by moving into her brother’s Xenia home and driving one of his cars. With her first paycheck after moving in with her brother, she paid everything off.
“It was like starting a new life,” Brooks said.
‘The need won’t change’
Crowley, who is against the payday lending reforms, said his members’ main concern is that HB 123 will shut down legitimate businesses while cutting off much-needed credit.
Cheney Pruett, a Texas resident who owns 59 CashMax stores in Ohio — including at least three in the Dayton area — called the bill “fatally flawed.”
“It’s nuclear winter for the industry,” Pruett said.
About 76 percent of Americans say they live paycheck to paycheck, he said, so people will still seek short-term loans. They may search out online loans with fees that are even more onerous — or even “back alley loan sharks.”
“The need won’t change at all,” Pruett said. “The need is there and will continue to be there.”
He acknowledges that some consumers find themselves stuck in cycles of debt, paying refinance fees for too long. But he said few customers find themselves on that “payday hamster wheel,” and his stores offer installment loans. He also said his loans in Ohio run closer to $11 charged for every $100 borrowed.
State Rep. George Lang, R-West Chester Twp., said a lot of Ohioans will be out of a job if payday lending stores are forced to close. Lang also said that communities rely on payday lending businesses for tax revenue to help police, schools and city services.
He also feared what could become of the hundreds of payday lending stores across the state if the regulations force them to close.
“What are these storefronts going to become? They could become massage parlors, or Asian massage parlors. They could become strip clubs, tattoo parlors or they could become a business that is laundering money while they’re selling crack cocaine out of the back.”
Cronmiller rejects the idea that reform would decimate the short-term lending industry. “Those business can still operate profitably without being so over the top with the amount of fees and fines that they charge.”
The clock is ticking to change the law
Lawmakers have just two House session days and one Senate session day left in June. Meeting dates in the fall are expected to be sparse. Any bills that fail to get approval in both chambers by the end of December die.
House Bill 123 now heads to the Ohio Senate where Senate President Larry Obhof has hinted at supporting some reforms. However, changes to the House version that passed last week are expected.