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Ohioans Lose over $500 Million to Payday and Car Title Loan Fees
11/19/2015 12:50:10 PM

Charlene Crowell says that each year Ohio consumers who only needed a small dollar loan wind up with more than $502 million in fees drained from their pockets.
By Charlene Crowell 

Despite a landslide voter decision in 2008 to cap payday lending rates at 28 percent, the state’s small-dollar, high-cost lending has continued to grow and now doubles the amount of fees charged a decade ago. Each year Ohio consumers who only needed a small dollar loan wind up with more than $502 million in fees drained from their pockets.

Although state regulators as well as the legislature have the authority to enforce the voter-approved 28 percent rate cap, neither has exercised that power for seven years.

These and other key findings and others appear in a new report, Buckeye Burden: An Analysis of Payday and Car Title Lending in Ohio, from the Center for Responsible Lending (CRL).

“Our findings in this report, show that the majority of payday lenders now offer both payday and car title loans in Ohio. Predatory lenders are doubling down on their efforts to offer harmful products,” said Delvin Davis, a CRL senior researcher and report co-author.

“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 (CSO) Act to continue their debt trap lending,” states the report. “The CSO Act is a well-documented form of subterfuge in other states as a means for evading consumer protections.”

In 2014, Ohio’s Supreme Court ruled the use of the Second Mortgage Loan Act by car title lenders was within the law; but did not address the CSO usage.

In the meantime, high-cost lending in Ohio has grown to 836 storefront locations statewide that offer payday, car title loans – or both. More than half of these stores – 59 percent – offer both types of loans. Only five payday lenders control 77.5 percent of the state’s market, operating 735 stores: Advance America, Cash America, Community Choice Financial, Check Into Cash and Ace Cash Express.

For an average $300 payday loan, these lenders charge triple-digit storefront loans ranging from 228 to 718 annual percentage rates (APRs). That same size loan purchased online with these companies has an even higher APR, ranging from 683 to 763 percent.

Car title loans, typically due in 30 days, tend to be larger than payday loans, vary in amounts ranging from $1,000 to as much as $5,000, and terms up to seven months. The only borrowers eligible for this more costly loan are those who own clear title to an automobile. Even then, the loan amount is a fraction of the vehicle’s value. Depending upon terms offered, a $2,000 loan could wind up costing $4,407 to totally repay or $1,959 for a six-month loan of $1,000.

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 fail to 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.

Recently more than 100 Ohio groups wrote the Consumer Financial Protection Bureau CFPB) about the state’s disturbing 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.

“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.”

Visitor Comments

Submitted By: Mark Greene Submitted: 11/23/2015
It is important to note that CRL is directly affiliated with the Self Help Credit Union, a half-billion-dollar financial institution and player in a network of related financial 501(c) groups including the billion-dollar Self Help Ventures Fund. Through these partnerships, CRL joins itself at the hip to certain players in the financial industry—most notably Bank of America, the controversial banking behemoth that partners in numerous Self Help network projects.

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