Vet leaders: Honor veterans by enacting strong federal rules on payday lending
November 10, 2014
On the eve of a holiday designed to honor the men and women who have served and protected the country, the leaders of two Ohio Veterans Service Commissions are calling for federal policies that would help protect veterans from the payday lending debt trap. Federal rules are necessary since payday lenders sidestep the state law meant to regulate them while charging upwards of 400% APR.
“Payday lending continues to be a serious problem for a growing number of our clients,” said John Warrix, the assistant director of the Franklin County Veterans Service Commission, a county agency that provides advice and emergency financial assistance to veterans and active duty members.
“The payday lenders make lending too easy. They enable people to build up a debt that they can’t get out of. Many of our clients are involved in two or more payday lenders, making the cycle nearly impossible to break.”
Legislative efforts to rein in payday lending in Ohio spanned four years, beginning in 2006. The Short Term Lender Law with a 28% APR rate cap passed in 2008. The payday industry challenged the law in a referendum and lost in a landslide. Six years later, it’s business as usual for the exploitive industry. Lending under inappropriate statutes such as the Mortgage Loan Act, payday lenders continue to trap Ohioans in a cycle of debt with interest and fees that have climbed back into the triple digits.
Cuyahoga County VSC Director John Reiss sees many of his clients also caught in the debt trap. “We have many veterans who are struggling with the cycle,” he said. “Payday loans are designed so that once you get in, the ways out are extremely difficult.”
Reiss also expressed frustration at how payday lenders target veterans and others on fixed low incomes. “They know exactly where the needy are. They put themselves in locations where people are struggling; where people are likely to be impulsive,” he said.
The number of veterans Warrix sees trapped in payday lending debt hasn’t changed since 2008, he said. “Once the payday lenders found the loopholes, they started popping right back up. We have clients who are wrapped up in four different loans at the same time.”
Payday loans are advertised as a way to meet a one-time need but are specifically designed to act like financial quicksand, forcing borrowers to take out loan, after loan, after loan at an average interest rate of nearly 400 percent. The vicious cycle of debt is not a side effect of payday lending, but rather the business model of payday lending – a debt trap by design.Three quarters of payday loan fees come from borrowers with 10 or more loans per year.
By 2007, so many troops had fallen into the debt trap that the Defense Department considered it a threat to military readiness and fought for protections that were eventually enacted in the Military Lending Act. This year, the Defense Department proposed broader rules to close gaps and provide more protections for active duty military.
“We need policies that prevent the debt trap among veterans as well, so that it doesn’t take five years to pay off a loan that was originally worth only a few hundred dollars,” Warrix said.
Warrix and Reiss said they both support strong payday lending rules currently being considered by the Consumer Financial Protection Bureau, including ability to repay standards like those that exist for mortgages and credit cards. “We went through this whole subprime lending meltdown a few years ago,” said Reiss. “You’d think we’d have learned our lesson about predatory lending.”
“After their service to our country, our veterans and their families deserve protection from financial predators,” Reiss said. “But why stop there? All Americans should be protected.”
COHHIO, the Ohio Poverty Law Center and Ohio CASH, a project of Policy Matters Ohio, frequently work together and against predatory lending products and schemes.