Predatory, Out of Control Payday Loans in Ohio and Toledo?
Darlene *, a Toledo single mother with two who had two jobs and now has a master’s degree, should have lived the American dream. Instead, she was weighed down by the negative impact of payday loans.
Her story began with $ 500, the amount she initially borrowed to pay for necessities like her car repairs and the gas bill. “It took me two years to get out of that first loan. Every two weeks I had to borrow more. I had nearly $ 800 in bills every month. It was a crazy cycle.
Sadly, Darlene’s story is not unique. The Center for Responsible Lending (CRL) found that 76% of payday loans are due to “loan attrition” – where the borrower takes out a new loan within two weeks of paying off a previous loan. This allows payday lenders to exploit dire circumstances, and this immediate need for money creates huge profits from outrageous fees.
State legislation to curb payday lenders
Toledo State Representative Mike Ashford is co-sponsoring the legislation, HB 123, with Representative Kyle Koehler of (R-Springfield) who would revise Ohio loan laws. The proposed legislation would ease the burden on short-term borrowers, who often pay the equivalent of 600-700% interest rate. Representative Ashford says current laws “make it impossible to repay loans. As a result, the Ohioans have long lived behind the financial eight ball. “
Local organizations supporting this legislation include: Advocates for Basic Legal Equality (ABLE), which provides legal services and advocates for low-income Ohioans; the Toledo branch of the Local Initiatives Support Corporation (LISC), which uses charitable loans to turn struggling neighborhoods into sustainable communities; and Centraide. These three groups collaborated on an ordinance from Toledo that would restrict the zoning of payday lenders.
Valerie Moffit, senior program manager for LISC Toledo, says HB 123 would be an improvement on “current payday lending practices [with high interest rates and repayment terms] that plunge our families more and more into poverty. ABLE lawyer George Thomas reiterates this point: “We see [payday lenders] as predatory lenders. They are extremely dangerous and they take money out of our community.
The Community Financial Services Association of America (CFSA), a business organization that represents Advance America Cash Advance and about 70 other payday loan companies, did not respond to a call for comment on the legislation introduced in Ohio.
Over the past 20 years, the payday loan industry has exploded in Toledo and across Ohio. In 1996, there were only 107 payday loan companies statewide. In 2015, that number increased to 836, according to the Center for Responsible Lending. In Toledo, there are at least 17 advertised payday loan stores, as well as several auto title lending companies.
According to analysis of data from the Housing Center of the Ohio Financial Institutions Division, Department of Commerce, Lucas County had 455,054 residents in 2010 and 67 payday lenders in 2007: an average of one lender in every 6 800 residents, similar to the state average. .
To limit this saturation, Toledo City Councilor Cecelia Adams introduced city zoning legislation allowing one store per 30,000 residents and requiring 2,000 feet between stores.
On May 2, Toledo City Council unanimously voted to pass payday lending zoning restrictions. Councilor Cecelia Adams spoke at the time of the vote: “This is a serious problem in our community that this ordinance will help solve… municipalities can restrict zoning in cities, but they have no control over practices. commercial… it’s late.
Local initiative; collaborating employers
Despite predatory tactics, the crisis is testament to the need for credit among struggling Toledoans. Gary Moore, professor of finance at the University of Toledo, describes payday loans as “subprime loans.” [that provide financial opportunities to] people who otherwise could not get loans. You don’t want to cut people off, but you don’t want people to be abused.
Even if a borrower successfully repays their debt, the loan is not reported to the credit bureaus, which creates another problem: “You can’t create credit with payday loans,” Adams explained. .
To provide a better solution, LISC Toledo, United Way of Greater Toledo, Lucas County Family and Children First Council, and the Filene Research Institute collaborated to create the Employer Sponsored Small Dollar Loan (ESSDL). The program, championed by Lucas County Commissioner Pete Gerken, combines employers and several Toledo-area credit unions to provide loans between $ 300 and $ 1,500 that are repaid directly from the paycheck. ‘a borrower over a period of six to twelve months.
ESSDLs report to credit bureaus, which can help the borrower strengthen their creditworthiness and offer interest rates below 17%, at no charge—
significant advantages over payday loans.
After her daughter was in a car accident, Darlene, once trapped in the payday loan cycle, was overjoyed to learn that her job offered ESSDLs. “I was able to borrow double what I would borrow from a payday lender,” she said, “but I paid a lot less interest and the repayment was taken from my paycheck. over 10 months. “
However, many Toledo employers do not offer ESSDL, so individuals will continue to look to standard payday loan stores to pay their bills and cover emergency costs.
The new legislation, HB 123, would, among other things:
- Limit a person’s monthly payment on the loan to 5 percent of their gross income.
- Spread payments over longer periods for larger loans.
- Limit the interest rate on loans to 28%.