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State lawmakers must regain the upper hand for consumers
Published on Thursday, Oct 01, 2009
The lenders insist they are operating well within established Ohio laws, which is true. Most of the lenders chose to take out licenses under the Small Loan Act and Mortgage Loan Act. As it turns out, this has enabled them to circumvent the restrictions imposed on payday lending. The new law sought to protect borrowers from exploitative practices that trapped them in prolonged debt. It pegged interest on short-term loans at 28 percent annual rate, increased the payment term to at least 30 days and limited borrowing to no more than $500 at a time and a maximum of four loans per year.
A survey reported this week by Policy Matters Ohio, a Cleveland-based think tank, describes a clear violation of the intent to loosen the grip of lenders on consumers in a pinch who need small loans for a short period. It found that operating under Ohio's mortgage and small-loan laws (which were designed for larger loans, such as a second mortgage loan, paid by installments), lenders are still making loans requiring payment within the two-week payday schedule instead of the month guaranteed by the payday law. Lenders are offering loans, sometimes one dollar above the $500 limit, and applying the fees designed for installment payments.
Others are issuing checks or money orders for the loans and charging extra cashing fees. Or they direct borrowers to their online sites, which attract additional costs. In effect, borrowers end up paying interest rates that are many times the 28 percent APR cap imposed by the law in 2008. The survey found online loans with charges that exceed 600 percent APR.
Payday lenders have outmaneuvered the law. Legislators bear some blame for not anticipating early how the mortgage and small-loan laws could be exploited. The consolation is the House Financial Institutions, Real Estate and Securities Committee began hearings last week on legislation, House Bill 209, that would align the other laws with the intent of the statute on payday loans and authorize the attorney general to prosecute violators under the Consumer Sales Practices Act. Enough of running around the law.
Get the full article here.
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