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House bill would rein in predatory lenders

The following, written by Aisha Sleiman and George Thomas (ABLE), appeared December 1, 2017 in The Blade.

Four out of five people who take out a short-term payday loan cannot afford to pay it back in just two weeks. Most roll it over and effectively end up in a debt trap for months on end. But payday borrowers in Ohio face an additional burden: Ohio currently has the most expensive payday loans in the country.

Advocates for Basic Legal Equality provides free legal services to low-income people in northwest Ohio, and our attorneys encounter the many reasons people find themselves in poverty. Financial exploitation ranks high on that list. Predatory payday lenders often cluster near lower-income, and African-American and Latino neighborhoods.

In May, with the help of community partners, including ABLE, Toledo's City Council unanimously passed a new zoning ordinance limiting predatory payday lenders from opening up new branches in an already oversaturated market.

Now Ohio public officials have a new opportunity at the state level to further reform the short-term lending industry and save Ohioans millions of dollars.

Longtime Toledo Representative Michael Ashford, and Springfield-area Representative Kyle Koehler introduced House Bill 123 in the Ohio General Assembly. The bipartisan bill goes to the heart of the problem — an out-of-control and unregulated industry.

These lenders—mostly out–of-state companies—drain money from our state and are charging significantly higher rates than in neighboring states.

To illustrate, consider James' case.

James is a 65-year-old who relies on Social Security as his sole source of income. James took out payday loans. He struggled to pay off the loans, so he contacted another payday lender. This time, he had to use his car as collateral.

The loan was for less than $4,000, with the interest rate initially set at 150 percent. He tried to make payments as best he could, but the lender told him that payments he made applied only to interest and fees.

Even worse, the lender told James that it "rolled over" his loan for another 30 days, further expanding the fees and interest. In the end, James would pay more than 700 percent APR. James now worries he may lose his car and remain trapped in debt permanently. Sadly, this example is all too common throughout Ohio.

H.B. 123 sets a reasonable limit on how much payday lenders can charge per loan, and ensures that the lender can still profit. The bill would allow lenders to charge a 28 percent rate on the first $400 borrowed, a monthly fee of up to $20, and it would limit monthly payments to 5 percent of a borrower's gross income.

Ohio borrowers are expected to save more than $75 million each year if this bill passes. When a similar bill passed in Colorado seven years ago, borrowers saved $40 million each year. And that $300 loan, which racks up $680 in fees, would be cut by hundreds of dollars under this proposed law, resulting in savings going back into the pockets of hardworking Ohio residents.

Opponents argue that payday lenders serve an important need for people who are underbanked, and the industry threatens to leave the state if any reform passes. These claims are unfounded.
After similar payday lending reforms were passed in Colorado, access to credit did not diminish, and the payday lenders remained in communities across the state.

In spite of the broad bipartisan support, the bill has languished in a House committee. The General Assembly has long ignored the will of state residents on this issue. In a 2008 referendum, Ohio voters overwhelmingly voted to limit payday lending rates. When polled last year, 80 percent of Ohioans were in favor as the solutions found in H.B. 123.

Recent payday regulations finalized by the federal Consumer Financial Protection Bureau won't solve the issue in Ohio. The CFPB rules do not limit the rates and fees that lenders charge; only state legislatures have the authority to rein in prices.
Working Ohioans are paying more than $145 million in fees every year to a predatory payday lending industry, and the majority of this money goes to the pockets of out-of-state lenders.

It's time the General Assembly did its job and represented the people they were elected to represent: the residents of Ohio.

Aisha Sleiman and George Thomas are with the Advocates for Basic Legal Equality in Toledo.