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You have
been repeatedly hearing and seeing the advertisements
offering you a quick way to get the money you need deposited
directly in your bank account. They are just the solution
for you. After all, the only requirements to obtain funds
are a checking account and a source of income. You have a
decision to make.
Getting an
advertisement through email almost always seems sketchy and,
if you are like most people, you do not like to deal with
any financial transactions online. Perhaps the advertisement
heard on the radio is trustworthy because a celebrity is
backing it. All you have to do is make a call to the 800
number and give them your information to see if you are
approved. No harm there.
Then there
is the direct mailer, which seems to be more personal since
it has your name on it. This offer from Springleaf presents
options: go online to apply, call a toll free number to
apply or make an appointment in Toledo/Holland to meet with
a loan officer.
Being
careful, you decide to go with the direct mail offer from
Springleaf. Performing a search online for more information,
you type in springleaf.com and are surprised when you see
OneMain pop up. The site informs you immediately, that
Springleaf is now OneMain. It further states that under this
new name, the staff remains the same and that current
customers can still access their accounts and pay back loans
with no problem.
However,
there is a problem. Often companies can be acquired by
another company to convert equity into cash, to aid an aging
owner in preserving his business or to avoid regulatory
penalties from state and local entities.
Today,
payday lending businesses in Ohio are expanding to a great
degree by placing their businesses near minority and
low-income neighborhoods. One in 10 adults, in Ohio, has
taken out a payday loan. There are more than 836 payday loan
stores in Ohio counties compared to approximately 800
McDonald’s locations. Ninety percent of those store fronts
are owned by companies that do business in other states.
“I knew
all 600 customers by name, “ says Marie (not her real name),
a former employee of a payday lending company, National
Cash Advance, which later acquired Advance America. “The
people borrowed every pay day. I would personally tell
people who seemed concerned about not being able to stop,
that they should try reducing the amount.” she adds.
Loan
payments were due every pay day but many customers could not
meet their obligation and were summoned to small claims
court. Since the company Marie worked for was national,
there was little local training. It also seemed that the
out-of-state owners were not in the least concerned with the
plight in which many of its customers found themselves, says
Marie.
They would
market themselves to gain more customers, offering little to
no recourse for its struggling patrons. With payday loans, a
person can take out multiple loans at different locations.
There are
ways that companies like this can keep track of how many
payday loans a client has at the same time and from which
locations. Knowing that a customer is borrowing from
multiple locations would raise a red flag with a reputable
financial institution. However there are no rules that say
it’s illegal to do such multiple borrowing. The problem with
this system is that it enables people to dig themselves
gaping holes that are hard to climb out of.
“I always
thought they were legal loan sharks,” says Marie of her
former employers. “Now they use an outside lender at
National Cash Advance, NCP. Back when I worked there it was
strictly cash advance. Now they do title loans, and longer
term loans. Also taxes. The reason I quit working there was
for personal moral reasons. I didn't like the trap it put
people in.” she adds.
The City
of Toledo knows this all too well and is now moving to pass
zoning restrictions on short-term lending. This is all a
municipality has the authority to do since it cannot, by
state law, regulate how the lenders actually operate.
In 2008,
Ohio’s legislature attempted to regulate the damage caused
by payday lenders under House Bill 545. Within the year,
lenders fought to partially overturn or limit the bill’s
impact on their industry. The legislation supposedly capped
annual interest rates at 28 percent lowering the 2008
average payday lending rate of 391 percent.
With House
Bill 545 in effect, payday lenders felt little pressure,
certainly not enough to end their predatory practices. To
avoid the mandate Ohio had to cap high interest rates, these
businesses found loopholes to continue charging triple-digit
interest rates. These loopholes are, in part, the Ohio
Second Mortgage Act and the Credit Services Organization (CSO)
Act which allow payday lenders to re-register their
businesses, often changing their names. They can register as
credit service organizations which are not subject to fee
limits. Currently, eight years after the passage of H.B.
545, Ohio has the highest average payday lending interest
rates in the nation, according to a 2014 report from The Pew
Charitable Trust – an interest rate of 591 percent.
In 2014,
the Ohio Supreme Court reversed a Ninth District Court of
Appeals decision that Ohio Neighborhood Finance, which runs
Cashland stores, illegally used a mortgage lending license
to get around state law cracking down on the lenders.
Writing
for the unanimous court, Justice Judith L. French determined
that the Short-Term Loan Act (STLA) does not prohibit
lenders registered under the separate Mortgage Loan Act
(MLA) from making interest-bearing, payday-style loans.
Also, under the MLA, a registered lender is permitted to
require that an interest-bearing loan be repaid in a single
installment, Justice French wrote.
According
to French, "It is not the role of the courts to establish
legislative policy or to second-guess policy choices the
General Assembly makes. If the General Assembly intended to
preclude payday-style lending of any type except according
to the requirements of the Short Term Loan Act (STLA), our
determination that the legislation enacted in 2008 did not
accomplish that intent will permit the General Assembly to
make necessary amendments to accomplish that goal now."
Much to
the chagrin of some lawmakers, Justice Paul E. Pfeifer made
a similar statement in concurring with Justice French.
Acknowledging that payday lending practices are
unconscionable, Pfeifer commented that “It was as if the
STLA did not exist. Not a single lender in Ohio is subject
to the law.” The legislation, wrote Pfeifer, is “smoke and
mirrors,” accomplishing “nothing.”
Such
companies are also not bound by the requirements of the
Truth in Lending Act which protects people against
inaccurate and unfair credit billing and credit card
practices. There are no cards involved and payday lenders
have the unique privilege of deducting money directly from a
customer’s bank account. Credit card companies also allow
their customers to make payments on principal balances.
Anthony
Curtis, a U.S. Army Officer and former Toledo resident, said
of some of his friends that “soldiers got tangled in that
web and found themselves in serious, serious financial
despair.” He referred the soldiers to a financial
reconciliation program, but he said that the missing piece
was education. “They just didn’t understand the slippery
slope they were getting onto,” Curtis said.
That
statement is true in the case of Officer Curtis’ experience
with his fellow soldiers and it is true among many Toledo
residents who believe their only option to overcome
financial woes is by getting short term loans that do not
affect their credit score. The fact is, a person cannot know
if she is qualified for a loan from a creditable financial
institution if she does not ask.
Toothless
regulations make it difficult for people such as Jayla (not
her real name), who says, “I started with one, then had to
get a second one to pay off the first. That cycle continued
until I had five payday loans out at once. I paid off four
of them and let one go to collections.”
While the
STLA needs to be reconstructed, it will take time to do it
right even if legislators in Ohio have the heart and stomach
for it. These predators, which have been in this community
for several years, are inflicting more harm than bringing
help to their customers. Likewise, they are of no benefit to
the city of Toledo as a whole.
These
types of businesses do not promote economic growth within
the community. Monies generated are not circulated
throughout the area. In fact, most of the profits,
approximately half a billion dollars in loan fees, depart
the city for other locations which makes the lending
companies the only winners in the equation.
In a major
effort toward changing the devastating impact these
companies have on the Toledo community local organizations,
including the Toledo Local Initiatives Support Coalition (LISC),
United Way of Greater Toledo, City of Toledo staff, and City
Councilwoman Cecelia Adams, PhD., have worked closely with
Advocates for Basic Legal Equality (ABLE) in drafting an
ordinance that would provide reasonable zoning restrictions
on payday and other short-term loan lenders.
In Toledo
the legislation will prohibit a payday lending businesses
from opening within 2,000 feet of an existing one and will
only allow one such business for every 30,000 residents,
according to Adams. This ordinance will not close existing
businesses, but will prevent new short-term lenders from
clustering in the city of Toledo.
“[The
legislation] is designed to place reasonable restrictions on
these businesses,” says Adams.
Similar to
ordinances passed in other Ohio cities, this ordinance also
will not affect normal financial service providers such as
credit unions and standard banks.
“No more
predatory lending” they shouted as cars drove by the 1600
block of Sylvania Ave. They are the Sylvania Avenue
Neighbors (SAN) a resident-led volunteer organization, who,
on Saturday, February 18, 2017 gathered in front of Ohio
Auto Loan for a press conference and protest in support of
the proposed ordinance.
Greg
Lyons, president of the SAN said that he would like to see
more businesses in and around the Five Points area that
promote economic growth. Payday lenders don’t represent that
type of business. “You gotta beat back the debt trap! You
gotta beat, beat back the debt trap!” the protesters
chanted.
Among
those present for the protest were various neighbors, an
occasional elected official such as Councilwoman Adams and
staff from Financial Opportunity Center (the LISC and United
Way initiative) holding signs offering free financial
coaching by calling 211.
On March
9, 2017 at 2:00 p.m., the Toledo Plan Commission will meet
at One Government Center to discuss the zoning legislation
offered to cope with the current economic drain the city is
experiencing due to the large number of short -term loan
businesses – 43 within the city limits according to Adams.
Other Ohio cities have already implemented zoning ordinances
including Cleveland, Xenia, Parma and Cuyahoga Falls. These
cities have received positive feedback regarding their
successful experiences.
The
importance of an ordinance like this guards the community
against infiltration by “poverty pimps” as one sign called
them during the protest.
Adams
expresses similar sentiments about the impact of payday
lenders on the areas they serve. “This is a carbuncle on the
behind of our community,” she says of such predators.
Predatory Lenders:
The Truth Examines Despicable Lending Practices – Part 1 |
