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After Payday Reform, Lenders Find New Ways to Bilk Ohioans
By Policy Matters Ohio
Special to The Truth
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 percent fewer loans
in 2019 than in 2018. They collected 93 percent less in
origination fees. Licensed
lending locations — typically storefronts —
fell by 55 percent,
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
percent. 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 percent 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 percent; the dollar amount by 40
percent,
from more than $533 million
to more than $745 million. The origination fees
collected grew by 180
percent. Ohio has 24 percent 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.”
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