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Ellen Belcher is the Dayton Daily News opinion pages editor. She writes about state government, education, the environment, higher education and all things Dayton.
Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.Home > Blogs > A Matter of Opinion > Archives > 2009 > May > 31 > Entry
Guest column: Payday lenders milk loopholes
By Tom Allio and Bill Faith
One year ago this week, Gov. Ted Strickland signed the Short Term Loan Act that capped the annualized interest rates payday lenders could charge at 28 percent, down from 391 percent.
Today, payday lenders are celebrating all the way to the bank, using loopholes in the law to charge up to 680 percent APR.
As of February, Montgomery County had 62 payday storefronts, the fourth-highest in the state. (Greene and Warren counties have 9; Miami has 10.)
The businesses are living it up, trapping customers in debt with their trademark one-two punch: excessively high interest and short repayment terms. Not even the people’s vote would stop them.
Maybe you remember that after the governor signed the rate cap law, the industry spent $20 million of its enormous profits to “let the people decide” at the polls last November. By a margin of nearly two-to-one, Ohioans voted yes on Issue 5 to uphold the 28 percent rate cap law.
First, our elected officials spoke; then the people of Ohio weighed in. No more debt trap, right? Wrong.
Only 19 of the 1,000-plus storefronts statewide licensed themselves under the Short Term Loan Act. The rest opted for licensure under Ohio’s Mortgage Loan Act and Small Loan Act.
Both statutes were designed to regulate other long-term lending products, like second mortgages; neither was intended to regulate a short-term product like a payday loan.
Under these statutes, payday lenders got creative. They started issuing loans in the form of a check, then charging the customer to cash the check; started charging origination fees — in addition to interest and other fees — as often as every week. Loans bulging with add-on fees sent interest rates through the roof, up to 680 percent APR.
The Housing Research and Advocacy Center confirmed all this in a March 2009 report titled, “The New Face of Payday Lending.”
The new face of payday lending funnels money from the needy into the vast coffers of a greedy industry. It mocks the system that tries to regulate it. It thumbs its nose at the will of the people. And except for even higher rates and fees, the new face looks a lot like the old face.
It lures borrowers with the promise of easy, fast cash, then traps them with excessively difficult repayment terms.
Borrowers don’t choose to return again and again. They do so because they’re trapped; and borrowers trapped in debt cannot save, invest or contribute productively to a healthy free-market economy. The practice strips wealth instead of building it.
Ohio has seen enough wealth-stripping from the foreclosure crisis. We don’t need more bad lending products that promise one thing and deliver the opposite. And we certainly don’t need a deceptive industry sidestepping the law to continue the carnage.
Let’s stop “loophole lending” with legislation that tethers all loans for under $1,000, and for less than 90 days, to the 28 percent annualized rate; that prohibits charging a fee to cash the loan check; and that gives the attorney general authority to go after lenders who attempt to skirt the law.
The people spoke clearly in a historic referendum last November. Ohio’s public officials have been delivered a mandate to address abusive payday lending practices.
Legislation that effectively closes the payday loopholes should be passed through both chambers and signed by the governor as quickly as possible.
Nothing less than the integrity of the Nov. 4, 2008 vote of more than 3 million Ohioans is at stake.
Tom Allio is director of the Social Action Office of the Catholic Diocese of Cleveland. Bill Faith is the executive director of the Coalition on Homelessness and Housing in Ohio.
Permalink | Comments (6) | Post your comment | Categories: Economy, Elections, Guest Columns, Ohio politics, Predatory lending
Comments
By Brian
May 31, 2009 7:19 AM | Link to this
Adults are responsible for their own actions. Payday lenders provide a service that adults can simply choose to use or choose not to use. (When I was poor/needy, I made a very simple decision not to use them; other adults can make the same choice I did.) No one is trapping consumers in debt – some consumers simply choose to make bad decisions. The fault is with the consumer, not with the Payday lender.
By David
May 31, 2009 3:34 PM | Link to this
Last week I needed 300.00. Instead of asking relatives for a short term help me out loan to solve my case of the shorts, I went to a cash land. I now owe them 329.00. I hate borrowing and I really hat the idea of borrowing from family. The 29.00 is no big deal and the money will be repaid by Friday of this week. So why is this a bad decision on my part? And why is it any of your business anyway?
By dhampton100
June 1, 2009 10:23 AM | Link to this
David you missed the whole point. Nobody is saying it is “their” business what “you” do. The point of the article was that protections need to be in place for people who get caught up in the cycle. If everybody was a responsible person, like you project yourself to be, there would have been no reason to write the article.
By dhampton100
June 1, 2009 11:26 AM | Link to this
Contrary to popular opinion everybody is not the same. In any society there will always be people who need looking out for. Jesus said: “the poor you will always have”. To measure every single person by your standards is where most people make their biggest mistakes. As a father, with an adult child who has learning disabilities, I face this attitude weekly. Simply because she’s an adult and appears normal, people want to hold her responsible for her all decisions. Sometimes they are correct, other times they are incorrect. This “one size fits all” mentality does not work in the real world. Some people need to be protected from themselves.
By Cash Advance
September 30, 2009 6:20 PM | Link to this
As a newbie, I am always searching online for articles that can help me. Thank you for sharing this !
By Thypegreece
January 17, 2010 12:22 AM | Link to this
This is a titanic article as they all are. I bring into the world been wondering less this for some culture now. Its great to get this info. You are fete and balanced.