Payday lending stores dot the landscape of Ohio’s small towns, suburban strip malls and inner-city thoroughfares.
To hear one side tell it, they give their customers — many with bad credit — much-needed access to quick money for emergencies and everyday expenses.
To hear the other side tell it, they take advantage of the poor by charging the highest interest rates in the country.
One side employs a small army of well-connected lobbyists and gives heavily to political campaigns.
The other side, the one pushing reforms, has fewer financial resources but refuses to back down.
“David didn’t stand a chance against Goliath but we know who won that battle,” said the Rev. Carl Ruby of Springfield, who is leading a coalition in favor of House Bill 123, which calls for major reforms of the payday lending industry. “We know that we are up against a Goliath, but we believe that this is a case where right will triumph over might. We are going to do everything in our power to expose those who are cashing in on the situation by standing in the way of HB 123.”
Related: Payday lender made 3 international trips with Rosenberger
The David versus Goliath reference may be exaggerated, but behind the payday loan storefronts are big money and political muscle. Consider:
- Payday lenders helped underwrite former House Speaker Cliff Rosenberger's trips to China, Normandy and London and accompanied him on the trips. On his watch, HB123 stalled in the House for more than a year. Sources say the Federal Bureau of Investigation is looking into at least one of the trips Rosenberger took — news that prompted Rosenberger to resign last month.
- While payday loan borrowers are typically low- to middle-income Americans, the top brass at the companies are paid handsomely, according to filings with the Securities and Exchange Commission. Ted Saunders, chief executive of Columbus-based Community Choice Financial, which has 489 stores in 12 states, was paid $3.16 million in 2017. Saunders also had use of the corporate aircraft and received an $11,875 auto allowance. Three other executives made a combined $4.5 million last year.
- Some of the lenders are generous political donors. Lee Schear, owner of Schear Financial based in the Dayton area, has donated $540,219 to Ohio candidates and political parties since 2012, During that same span, Rod Aycox, head of Select Management Resources, a Georgia-based auto-title lender, gave $300,000. Schear sent $25,000 to the Ohio GOP on April 4.
- FirstCash, Inc., owner of 2,200 pawn shops and payday lending stores in North and Central America, disclosed in SEC filings that its top shareholders include financial world heavyweights such as BlackRock Fund Advisors, Vanguard Group, Fiduciary Management, Dimensional Fund Advisors, and William Blair & Co.
Related: Ohio failed to limit payday loans before. Will this time be different?
Typically with payday loans, consumers borrow between $100 and $1,500 that must be repaid within 30 days, either through a post-dated check or automatic withdrawal. Interest and fees can boost the annual percentage rate above 400 percent. Often, borrowers can’t make the full payment when it comes due, so the loan is extended, accruing more interest and fees.
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.
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, with complaints piling up, 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.
At the time, the referendum was thought to be a win for consumers. Except, no lenders are licensed under that law. Instead, 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.
HB 123 calls for closing loopholes, limiting monthly payments to no more than 5 percent of the borrower’s monthly income, limiting fees to $20 per month or no more than 5 percent of the principal up to $400, requiring clear disclosures for consumers and caps on fees and interest at 50 percent of the original loan amount.
The bill, introduced in March 2017, has faced a pitched battle.
After stalling for more than a year, it gained new life with news of Rosenberger’s trips with payday lenders, his resignation and an FBI probe into his activities. Talks of drastic amendments to the bill died off and Koehler’s original version received a 9-1 committee vote in April.
But last week, another roadblock surfaced. The floor vote on HB 123 and a host of other bills was cancelled because of Republican infighting over who will be speaker for the seven months remaining in Rosenberger’s term. The House cannot hold a session until a new speaker is elected.
Related: Has campaign cash stalled reform bill? This group thinks so
‘Bad for consumers’
State Rep. Niraj Antani, R-Miamisburg, opposes HB 123, saying he’s concerned the bill hurts the very people it is trying to protect.
“I support reforms to short-term lending to protect consumers, but House Bill 123 in its current form would completely take away access to credit for Ohioans who need access to loans in a medical or automobile emergency,” Antani said. “We should take our time to form good public policy, not rush to something that will result in hurting people who need access to credit.”
Lenders call the bill, sponsored by state Rep. Kyle Koehler, R-Springfield, unworkable and predict it’ll put them out of business.
“HB 123 is bad for consumers because it will cut access to credit for hundreds of thousands of responsible Ohioans who rely on and use short-term loans to manage their finances,” said Patrick Crowley, spokesman for the Ohio Consumer Lenders Association. “The OCLA favors reforms that strike a balance between consumer protection and access to credit. We welcome the opportunity to continue working on responsible reform. But in its current form HB123 does nothing for consumers but take away their options.”
Some lenders say they are already struggling. Citing its level of corporate debt, Community Choice Financial in recent SEC filings said “substantial doubt may arise about our ability to continue as a ‘going concern.’”
Community Choice Financial has 94 stores in Ohio that operate under the name CheckSmart.
Koehler said his bill would put an end to exorbitant fees and protect people from falling into cycles of debt where they can’t pay off the principle. A woman from Lima told him she’s been paying $429 a month in interest and fees for 17 months because she couldn’t come up with the $2,300 she owes in principle. The interest and fees alone are more than three times what she originally borrowed.
“I’m fighting to reform payday lending in Ohio,” Koehler said. “I’m not shutting it down. I’m not shutting down payday lending. I’m trying to create a set of guide rails so that people can operate, they can make money and people are protected.”
‘They rule the roost’
Hovering over HB 123 is the election for governor in Ohio, which will pit Republican Attorney General Mike DeWine against Democratic former Attorney General Richard Cordray. DeWine beat Cordray in the 2010 race for attorney general.
Although DeWine has said Ohio should enact payday lending reforms, Cordray has spent years fighting lenders as the former director of the federal Consumer Financial Protection Bureau.
Before leaving the consumer post to run for governor, Cordray championed a rule that requires payday lenders to determine a borrower’s financial capacity to repay a loan before completing the transaction. Lenders continue to fight the rule, which is scheduled to take effect next year.
Cordray said payday lenders hold clout across the nation.
“They rule the roost in many state legislatures,” he said. “They give extensive campaign contributions. They spread money around lavishly. They tend to buy up all the top lobbyists.
“They are crafty, they are cunning and they are absolutely well-financed.”
Payday Lending in Ohio
1995: Ohio adopts the Pay Day Loan Act, which requires state licensure but exempts payday lenders from the state usury laws
2008: Ohioans by nearly a 2:1 margin vote to keep new payday lending reforms in place. Lenders, however, start issuing high-cost loans through other state laws — sidestepping the reforms.
2010: The FBI begins investigating state lawmaker Carlton Weddington after news reports indicate he solicited a donation in exchange for discussing payday lending practices.
2012: After an FBI sting operation, Weddington is sentenced to three years in prison for bribery.
2013: State lawmaker Clayton Luckie, a Dayton Democrat, is sentenced to three years in prison for diverting some $130,000 from his campaign account. The FBI investigation was prompted by a payday lender reporting a donation that didn't show up on Luckie's reports.
2016: Then Ohio House speaker Cliff Rosenberger, R-Clarksville, travels to China on a trip partially underwritten by a payday lender.
March 2017: State Rep. Kyle Koehler, R-Springfield, introduces House Bill 123, which calls for closing loopholes, limiting fees, requiring clear disclosures and limiting loan amounts.
August/September 2017: Rosenberger takes trips to London and Normandy, underwritten in part by payday lenders.
January 2018: Consumer advocates announce they're preparing to put the issue on the November ballot.
April 2018: Rosenberger discloses he hired a defense attorney to deal with FBI inquiries. He resigns five days later, saying his actions have been legal and ethical.