Every day, hardworking Ohio families trying to make ends meet take out payday loans to cover basic living expenses. All too often they end up trapped, for months or even years, in a costly cycle of debt, paying fees that are hundreds, or even thousands of dollars more than the original loan.
The payday lending problem is exceptionally bad in Ohio. In fact, our state has the highest payday loan prices in the nation, with lenders charging 591 percent interest on average. This is not an area where Ohio should be a leader.
In addition to making it harder for Ohio families to escape the cycle of debt, Ohio’s economy suffers, as $145 million is paid in fees and interest each year, mostly going to out-of-state companies.
This is something we should all care about. We can and must fix this situation.
That’s why I, together with my colleague, State Rep. Mike Ashford, introduced bipartisan legislation earlier this year to reform payday loans. With the Ohio Legislature now reconvening after summer recess, it is important for our state that this bill now move forward.
House Bill 123 would provide fair and affordable loans for families in need – and close the regulatory loopholes that have been exploited by payday lenders since Ohio voters capped the interest rate in 2008. In spite of the will of Ohio voters, payday lenders today are charging even higher prices than before and the problem is worse than ever.
More than a million Ohioans have taken out payday loans. These are working people who make an average of $30,000 a year. Borrowers represent a wide cross-section of Ohio’s residents, including single parents, veterans and senior citizens. The problem is not isolated to urban areas – 76 of Ohio’s 88 counties have payday loan stores, with 1.5 million rural Ohioans living in these areas.
Borrowers’ experiences are consistent: They are employed (they must have an income to qualify for a loan) and have damaged credit scores. Families, often living paycheck-to-paycheck, turn to payday lenders for short-term loans in an attempt to pay bills on time. The loans have unaffordable payments. Borrowers can’t afford to pay the loan back without taking out another, so they end up in debt for months on end.
HB 123 would address all of these problems and is based on a proven, successful model that ensures access to credit remains widely available — but at reasonable rates. In summary, the bill will:
• Cap interest rates at 28 percent, plus a maximum monthly finance fee of $20.
• Require affordable monthly payments for borrowers, shielding 95 percent of a borrower’s monthly income.
• Provide borrowers a reasonable time frame to repay the loan.
It’s important to note that, for several reasons, recent payday regulations finalized by the federal Consumer Financial Protection Bureau won’t solve the issue in Ohio. The CFPB rule does not limit the rates and fees that lenders are allowed to charge; only state legislatures have the authority to rein in prices.
Passing the HB 123 legislative compromise is expected to save Ohioans $75 million each year, which will benefit local businesses and create jobs in communities throughout Ohio. I am encouraged by the growing ranks of Ohioans for Payday Loan Reform, a coalition that includes community, faith, business, veterans and consumer groups from across the state.
The time for reform is now.
Rep. Kyle Koehler is a businessman from Springfield who represents House District 79.