Payday lending in Ohio has grown in the seven years since voters decided to cap rates at 28% and now doubles the amount of fees charged a decade ago. Consumers in the state seeking small-dollar loans each year end up with more than $502 million in fees, according to the Center for Responsible Lending (CRL).
State lawmakers and regulators have the power to enforce the voter-approved 28% rate cap but neither have done so since it passed in 2008.
"Rather than operating under the intended regulatory structures, payday and car title lenders exploit Ohio’s Second Mortgage Loan Act and Ohio’s Credit Services Organization Act to continue their debt trap lending," states a new report, Buckeye Burden: An Analysis of Payday and Car Title Lending in Ohio, produced by the CRL. "The CSO Act is a well-documented form of subterfuge in other states as a means for evading consumer protections.”
Delvin Davis, a CRL senior researcher and report co-author, said the findings in the report show that most payday lenders now offer both payday and car title loans in Ohio.
"Predatory lenders are doubling down on their efforts to offer harmful products,” he said.
Ohio’s Supreme Court in 2014 ruled the use of the Second Mortgage Loan Act by car title lenders was within the law but didn't address the CSO usage.
High-cost lending in Ohio meanwhile has grown to 836 storefront locations statewide that offer payday, car title loans or both. Fifty-nine percent of the these stores offer both types of loans. Only five payday lenders control 77.5% of the state’s market, operating 735 stores: Advance America, Cash America, Community Choice Financial, Check Into Cash and Ace Cash Express.CRL’s report notes how neither car title nor payday loans take into account a borrower’s ability to repay. Loan fees, however, will be swiftly accessed via checking accounts for payday borrowers and car repossessions for title loans. If payday borrowers don’t keep an adequate checking account balance, loan fees can lead to additional overdraft charges or involuntary account closures. Similarly, if a title loan becomes delinquent, the lender can choose to take the car.
"The flourishing payday lending practices in Ohio are the ultimate case-in-point for why rules governing predatory practices might be airtight," said Diane Standaert, CRL’s director of state policy and report co-author. "The Consumer Financial Protection Bureau should take note. Clearly, this is an industry that will find and exploit any possible angle to continue making predatory loans designed to trap Ohioans in an endless cycle of debt."
Recently more than 100 Ohio groups wrote the CFPB about the state’s growth of predatory lenders. In its recommendations, CRL also urges CFPB to enact strong rules to end the debt traps generated by payday and car title loans. Requiring a borrower’s ability to repay a loan, limiting the amount of time lenders can keep borrowers in debt and curbs on re-borrowing or refinanced loans were all among the specific initiatives CRL advocates.