The Center for Responsible Lending recalled the moment last week in its analysis of the payday and car title loan market in the state. The Washington think tank noted Jon Husted, then the House speaker, making the case for limiting interest rates to achieve a “reasonable expectation” that the borrower could pay back the loan and avoid a cycle of debt.
That was then. Now? In its study, the center found payday lenders and related operations thriving here, reaping more than $500 million a year in fees from financially strapped Ohioans, or twice as much as they collected in 2005.
They still charge the equivalent of triple-digit interest rates. These loans are advertised as temporary, a short-term fix to get a borrower from paycheck to paycheck or to deal with an emergency. Yet according to the analysis, the typical borrower ends up in debt for more than 200 days, snared in the trap of the predatory lender.
These lenders are not violating the law, or somehow exploiting a loophole in what lawmakers enacted. They simply shifted their operations, conducting business under the Ohio Mortgage Act and Ohio Small Loan Act. They now make loans based on a car title. They have exposed the sloppiness of state lawmakers, the legislature failing to close such alternative paths, something the Ohio Supreme Court made plain in a ruling last year.
That hardly takes the lenders off the hook. They are preying on the vulnerable and defying the will of Ohio voters. After lawmakers enacted the 28 percent limit on the interest charged, payday lenders mounted a statewide ballot initiative to overturn the restriction. The initiative failed — 64 percent of voters wanting the limit to remain.
Ideally, lawmakers would respond to the maneuvering of payday lenders with legislation reinforcing their earlier intent and the position of voters. The Republican majorities, instead, largely have looked the other way, few returning to the purpose voice by Jon Husted.
As the center analysis notes, neither have state regulators moved in any aggressive way to enforce the 28 percent interest limit and protect consumers.
If state officials continue to side with predatory lenders, perhaps the federal Consumer Financial Protection Bureau will bring a measure of relief. The center relied on data collected by the bureau, finding, among other things, that 75 percent of all payday loan fees are generated by borrowers with more than 10 loans a year. The bureau currently is in the process of writing new regulations for payday lenders. These rules carry the potential for restraining abusive financial practices, requiring, for instance, that the lenders establish a borrower’s capacity to repay a loan.
Closer to home, worthy local efforts have sought to develop alternatives to payday and car title lenders. The lenders are right to that extent: There is a need for such financial help. What should not be permitted is rank exploitation of the vulnerable, something Ohio once declared emphatically, only to have the call neglected and ignored.
©2015 the Akron Beacon Journal (Akron, Ohio)
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