May 8, 2007. The Columbus Dispatch.
Four years ago, Beverly Cousar borrowed $500 from a payday lender to help her son. Cash-strapped to pay off the debt, she borrowed money from another payday lender.
The cycle of borrowing, fees for bounced checks and high loan rates grew and she ended up paying $3,000 for the $500. Her attempts to work out a payment plan, she said, were rejected. “They wouldn’t work with me,” she said before 2,000 people at a BREAD meeting last night at Temple Israel. “They had their teeth into me.”
Cousar’s experience, along with others in the state, prompted Building Responsibility, Equality and Dignity to launch a campaign against the industry that it thinks preys on the poor.
BREAD wants the state to cap the payday lending rate at an annual rate of 36 percent, the same limit a federal amendment passed last year used to cap interest rates on loans for military families.
The number of payday lenders in Ohio has increased from 107 in 1996 to 1,562 in 2006, and Franklin County has the most in the state with 183 such businesses, according to a Policy Matters report released in February. The nonprofit group is a policy-research organization designed to broaden the debate about economic policy in Ohio.
Tighter regulation of payday lenders is critical because the average 390 percent annual rate for the short-term loans is excessive, said Carol Roddy, chairwoman of BREAD’s research committee on the working poor.
State Sen. Ray Miller, who previously introduced legislation to regulate the industry, said the paralyzing poverty of the payday lending cycle affects Ohioans across the state, including in rural areas and suburbs.
“We are trying to keep people from a position of financial ruin from going from one check casher to the next to try to pay for the first loan and eventually end up in a financial position” they can’t get out of, said Miller, a Democrat from Columbus.
Miller, the only state senator at the meeting, proposes an interest-rate cap along with limiting the number of loans a person can have with payday lenders at one time, and developing a statewide database that would track the number of outstanding loans one has with payday lenders.
Customers currently can have only one loan out per payday lender, but there is nothing in state law that prohibits them from having a loan out at a different one, said Dennis Ginty, a spokesman for the Ohio Commerce Department, which regulates the industry.
There were no representatives from the payday-lending industry at the meeting last night. BREAD members had a man dressed in a shark costume with feet hanging from its mouth symbolizing a loan shark for a mock interview.
Jamie Frauenberg, president of the Ohio Association of Financial Service Centers, spoke to The Dispatch before the meeting, saying proposed regulations are unnecessary because those who use the service aren’t complaining.
“Consumers in Ohio are happy with the service they are getting,” said Frauenberg, also the vice president of store operations for CheckSmart, which operates 26 locations in central Ohio.
The annual interest rate that BREAD quotes when talking about the lending industry is inaccurate because the loans are usually for 14 days and not one year, Frauenberg said.
For loans of $500 or less, there is a $5 loan-origination fee for every $50 borrowed plus 5 percent interest per month or partial month. For example, a $100 loan for two weeks would cost $115, he said.
Lower interest rates would put payday lenders out of business, Frauenberg said, and if that happens, “That need is not going to go away.”
If payday lenders didn’t exist, people would borrow money illegally, Frauenberg said. And he said the industry is instituting measures to help customers. His stores started an extended-payment plan, he said, which allows debt payment in four equal installments with a $15 fee and no interest.
BREAD also announced last night a campaign to seek state funding for health care for the working poor and a truancy program that will begin in Columbus schools in the fall.
