After payday reform, lenders find new ways to bilk Ohioans
Posted December 02, 2020 in Press Releases
A 2018 law has helped protect Ohioans who turn to certain kinds of short-term loans to get through an emergency. However, unethical financial corporations found new ways to profit by trapping borrowers in a cycle of debt, a new Policy Matters Ohio report shows.
“Everyone deserves the chance to pursue a better future, no matter how much they’re paid,” said report author, Policy Matters Project Director Kalitha Williams. “Even before the pandemic recession, many of Ohio’s most common jobs paid too little for a family to get by. Certain lenders rigged the rules for their own profit by trapping borrowers in a costly cycle of debt. With so many people out of work and facing eviction, it’s more important than ever to protect Ohioans in financial crisis.”
Two years ago, Republicans and Democrats joined together to pass House Bill 123, reining in the onerous fees and interest rates that accompany auto-title and payday loans. After HB 123 took effect, auto-title lending stores closed and the number of payday lending stores decreased. Lenders using the Ohio Small Dollar Loan act, a statute used to make payday loans, made 72% fewer loans in 2019 than in 2018. They collected 93% less in origination fees. Licensed lending locations — typically storefronts — fell by 55%, according to data obtained from the Ohio Department of Commerce.
Yet unscrupulous financial corporations found new ways to increase their profits. In 2008, Ohio voters approved a ballot amendment to cap payday interest rates at 28%. After HB 123, financial corporations drove up costs by adding charges like origination fees and check cashing fees to payday loans. As a result, the Ohio Department of Commerce calculated the average annual interest rate for payday loans was 148% last year.
Meanwhile, consumer installment loans — made for larger amounts with longer, structured repayment periods and terms — proliferated in Ohio. The number of originated loans increased by 35%; the dollar amount by 40%, from more than $533 million to more than $745 million. The origination fees collected grew by 180%. Ohio has 24% more licensed installment loan locations in 2019 than it did in 2018. The situation could soon become worse. The Ohio Senate Insurance and Financial Institutions Committee is considering an amendment that will allow installment lenders to add “junk fees” to their loans.
“Ohioans of all races are harmed by these dangerous financial products, but they’re especially dangerous for Black and brown people,” Williams said. “People of color already face so many barriers to financial security, from discrimination in lending to being paid nearly $5 an hour less than white Ohioans. Lawmakers say they want to expand opportunities for all Ohioans, no matter our race. One thing they can do immediately is to stop advancing legislation that allows lenders to exploit consumers and implement policies that protect people who need help to make ends meet.”