Campaign 2016 Why It Matters Debt
Payday lenders continue to find their way around Ohio interest-rate restrictions, with loans that experts say sometimes exceed 700 percent in annual percentage-rate terms. The editorial board of cleveland.com and The Plain Dealer says -- again: That has to stop.
(Jon Elswick, Associated Press, File, 2015)
The payday loan problem continues to fester in Ohio, despite a 2008 referendum and state law seemingly banning these super-high-interest, short-term loans. The reasons: lenders' apparent unquenchable ability to divert around attempted barricades and the Ohio legislature's failure of will to counter these moves.
Into this breach has stepped the federal Consumer Financial Protection Bureau, led by former Ohio Attorney General Richard Cordray. Earlier this year, the CFPB proposed nationwide rules to fight predatory lending with a proposal under which "payday loans will be severely restricted," as The Plain Dealer's Teresa Dixon Murray reported.
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But maybe not restricted enough: The Coalition on Housing and Homelessness in Ohio (COHHIO) warned of a possible loophole in the CFPB's proposed "ability to pay" rule requiring payday lenders to check whether a borrower can afford a loan. COHHIO said the rule could be evaded if lenders use the borrower's repayment of a prior loan to demonstrate "ability to pay," even when the person's financial circumstances might have changed.
Other critics, such as those from the Pew Charitable Trusts' small-dollar loans project, worry the rule is too inflexible and fails to address an industry move toward new types of installment lending.
Still, cleveland.com's Stephen Koff reports that payday lenders are -- ironically -- getting hundreds of their borrowers to write notes opposing the CFPB plan.
Clearly, strong federal rules are required and CFPB should aim high, despite its understandably cautious, deliberative process as a new regulatory agency.
But what's even clearer is that there is no substitute for tough state law. The Ohio General Assembly needs to uphold the will of the state's voters by genuinely clamping down on payday loans.
Last decade, the legislature did act against payday lenders, capping the annual percentage rates (APRs) on payday loans at 28 percent. In a 2008 referendum, almost two-thirds of those Ohioans who voted upheld that restriction.
But then payday lenders found a loophole -- another Ohio law, never before used as a vehicle for payday lending. That's allowed lenders to jack up the interest rates they charge Ohioans to "from 228 percent to 718 percent APR for a $300 short-term loan," according to COHHIO - greed at its most revolting.
The General Assembly has a responsibility to Ohio voters to rein in a ruthless industry that's defying them. It's past time for lawmakers to act.