Payday lending is alive and doing fairly well in Ohio, but proponents of the short-term loan practice say things could go south quickly if the state legislature adopts a bill that would drastically reduce the amount lenders can charge for the service.
House Bill 333, and a mirror bill recently developed in the Senate, would lower the annual percentage rate (APR) that payday lenders can charge to 36 percent. Gov. Ted Strickland recently announced he favors the cap, as do mayors from several of the state’s largest cities.
Supporters of HB 333 say the lenders are currently able to charge an APR that works out to 391 percent.
“We don’t want to be unreasonable, and I’m not saying we wouldn’t consider a compromise, but 391 percent APR is too high,” said Bill Faith, legislative chairman for the Ohio Coalition for Responsible Lending, a Columbus-based, 241-member group of advocates for fair small loan lending practices.
“I think most people look at payday lending like I did—yes, people may be getting overcharged, but it’s not happening that much,” Faith said. “But in reality, people are getting caught in this lending cycle payday after payday. We just want them to have options.”
Darryl Dever, a Columbus businessman and lobbyist for Ohio’s payday lenders, who now operate 1,638 storefronts across the state, said the coalition is “crying wolf to force us out of business.”
He said the notion that payday lenders are charging 391 percent APR is deceptive because the money is not being loaned on an annual basis.
“That figure just feeds a lot of emotionalism. These loans are not for an entire year; they’re two-week loans at 15 percent interest per $100 borrowed,” Dever explained.
“If that rate is cut to 36 percent APR, the lender would only be able to charge about $1.38 for a $100 loan,” he said. “That would put all of these lenders out of business.”
Payday lenders provide a viable service to Ohioans who need small, short-term loans to cover emergencies or pay bills that come due before payday, Dever said. He said he has received more than 26,000 letters from people who want the service to continue.
“There is no crisis, and more than 90 percent of borrowers are paying their loans on time,” he said.
Paul Wallace, supervisor at locally owned Insta-Cash Payday Loan and Check Cashing, 1009 Washington Blvd. in Belpre, agrees. The firm has been in business since 1999.
“I guarantee that any retail or grocery store in this area deals with far more bounced checks than we do,” he said. “We write off less than 1 percent of the checks we receive.”
Wallace said his average customer makes around $31,000 a year and often just needs a small loan to pay a bill or meet some other need prior to payday.
“We can tell if someone may have a problem paying off a loan,” Wallace said. “That’s one reason we require people to bring in their phone bills. We can look at information like that and tell who might be a risk.
“We probably turn down about 10 percent,” he said. “If you don’t meet the criteria, you can’t get the money.”
Wallace said something often overlooked by critics of payday lending is that the interest rate on the short-term loans hasn’t changed much since Ohio approved the process in 1995.
Attorneys Robin Bozian and Dennis Harrington with Southeastern Ohio Legal Services in Marietta estimate they handle 15 to 20 cases a year from people who get trapped in the lending cycle.
“Our halls aren’t flooded with cases—but most of the people we see (for these cases) are in a lot of trouble,” Bozian said. “The majority of payday borrowers want to pay back their loans, but they really can’t afford it.”
“I haven’t seen anyone getting a payday loan who doesn’t have some kind of vulnerability,” Harrington added. “I never see the average working Joe needing one of these loans.”
Bozian said the legal aid agency recently dealt with an elderly man who owed five payday loans he couldn’t afford. She said although borrowers cannot receive additional loans from the same lender until the current loan is paid off, many will simply go to other lenders for a new loan.
“I just think they’re capitalizing on the people who can least afford these loans. Most are on fixed incomes, they need money, and they don’t look at the long-term effect,” Bozian said.
Washington County has 19 payday lender storefronts, down two from the number operating in 2006. The county is second in the state with 3.25 lenders per 10,000 residents.
Wallace said one reason there are so many in this area is because West Virginia has banned payday lending and many customers are crossing the Ohio River to obtain short-term loans.
“I would say about 75 percent of our customers come from West Virginia,” he said.
Ohio Rep. Jennifer Garrison, D-Marietta, said she supports HB 333 and believes 36 percent is a fair rate of return.
She said HB 333 also makes people with any outstanding short-term loans ineligible for more.
“The bill sets up a statewide database that lenders could check before approving a loan,” Garrison said.
She said legislative leaders are hoping to have a payday lending bill ready for an up or down vote before the General Assembly takes its summer break at the end of May.
