The Ohio General Assembly is considering legislation to keep payday lenders from trying to make up revenue shortfalls by hitting consumers with various fees.
The debate comes two years after state lawmakers passed legislation regulating the amount of interest payday lenders can charge for short-term loans. But since that bill, House Bill 545, became law, state Rep. Jennifer Garrison, D-Marietta, says lenders have found ways to make up for the state-mandated drop in interest rates by levying other charges.
"They switched to using legislation from the state Mortgage Act and Small Loan Act, meant for long-term loans, to add more fees," she tells the Marietta (Ohio) Times, "a fee to cash the loan checks for their customers, for example.
Before House Bill 545, payday lenders could charge interest rates on two-week loans that translated to as high as 391% annual percentage rate (APR). The bill capped the APR they could charge at 28% and was upheld by voters after the lenders placed a referendum on the bill on the statewide ballot.
That fee can run between 3% and 6% of the payday loan, on top of the loan finance fee, says Suzanne Gravette Acker, with the Coalition on Homelessness and Housing in Ohio (COHHIO), a group opposed to the payday lending practices.
"The finance charge for a $100 loan is $25.95," Acker said. "On a two-week payback, that's an APR of more than 600%."
Acker said lenders' abilities to charge such fees were not on the radar when House Bill 545 was enacted. The proposed new bill, HB 486, seeks to close those loopholes, adds Garrison. That bill is co-sponsored by Rep. Gerald Stebelton, R-Lancaster, and Rep. Matt Lundy, D-Elyria.
The legislation would prohibit lenders licensed under all small loan and mortgage lending statutes from charging fees to cash the lender's loan check; limit origination and credit check fees to no more than once in a 90-day period on loans of $1,000 or less; and prohibit fees for the lender to act as a credit service organization on behalf of the borrower.
Stebelton says it's not the intent of the bill to put payday lenders out of business. He believes the bill is a "reasonable way to help" keep consumers from being trapped in "a cycle of debt." He says that those who use payday lending bear some responsibility for the debt cycle problem.
Last week, the Ohio Attorney General's office warned consumers that phony debt collectors are harassing Ohioans for repayment of payday loans they never borrowed. Those collectors pretend to be from the legitimate Kentucky-based company, U.S. Cash Advance.
"They're very aggressive debt collectors," says Kim Kowalski, spokesperson for the Ohio Attorney General's office. "They're using harassing tactics including calling them repeatedly at work and insisting that they wire the money."
One consumer complained that although she never did any business with U.S. Cash Advance, a representative claiming to be from the company called her 25 times at work in one day demanding $300. Others complained of demands to wire $2,100.
The Better Business Bureau reports that the real U.S. Cash Advance does not issue loans of more than $450, and their collectors will not contact consumers by phone or request payment by wire transfer.
Standard collection procedure follows that after consumers are contacted by phone, they should receive a written validation letter in the mail within five days of the call. The letter should detail the exact amount owed.