Fees charged by the payday and car title loan industry cost Ohioans more than $500 million a year, mostly affecting residents who are already struggling financially, according to a report released this month.
The industry has used loopholes to charge interest rates averaging more than 300 percent, the report from the Center for Responsible Lending argues, despite reforms enacted in 2008.
Ohio has more than 830 storefronts that offer payday or car title loans, most of which offer both forms of loans, according to the report. At least 13 such stores are in Springfield and Urbana, many clustered on East Main and South Limestone streets.
The industry abides by existing laws, an industry spokesman said, and provides a necessary service in many communities by offering credit to customers who often don’t have easy access to traditional banks.
“We play by the rules, we operate out of storefronts in the communities we serve and we help families get through the tough times that so many people encounter,” said Pat Crowley, a spokesman for the Ohio Consumer Lenders Association. “If our members didn’t exist, the need for credit would not go away. Instead, borrowers would have to turn to more expensive and less regulated loans, such as those offered by offshore Internet lenders.”
Voters approved tougher regulations on the industry, including a 28-percent interest rate ceiling as part of the state’s 2008 Short Term Loan Act. But the report by Responsible Ohio says many businesses have skirted those regulations through legal loopholes.
The report estimated stores in the industry charged Ohio residents about $185 million in payday loan fees and about $318 million in car title loan fees.
Car title loans in particular often lead to increasing debt for consumers, the report says. A typical car title loan is refinanced eight times, meaning an average borrower will pay fees nine times on a single loan. The report also estimated the average fee for every $100 borrowed is about $25.
“Even though car title loans are marketed as a quick financial fix, they actually create a long-term cycle that costs borrowers hundreds of dollars in fees over and above what the loan amount originally was,” said Diane Standaert, director of state policy for the Center for Responsible Lending and co-author of the report. “It creates a cascade of financial consequences.”
It’s important for consumers to be educated about the consequences of taking out a short-term loan on their finances, Clark County Commissioner John Detrick said.
“I would hope that people would become more consumer-educated and realize that borrowing $100 now and paying $120 back in a month is never going to get you ahead,” Detrick said. “These places are OK if it’s a one-time fix but once people fall behind they never get caught up.”
Companies like Advance America are heavily regulated by the state, said Jamie Fulmer, senior vice president of that company. Advance America operates in 29 states and has three locations in Springfield.
The company provides a needed service for customers who don’t have easy access to traditional credit and banking, Fulmer said. He also argued his company is upfront with customers about its products and fees.
“What we think is important is consumers have access to a multitude of different credit products, have those products presented to them in a simple and transparent and fully disclosed manner, and then let them make a decision that’s best for them and their families,” Fulmer said.
By the numbers:
$502 million — Fees spent in payday or car title loans
836 — Stores in Ohio offering payday or car title loans
28 percent — Interest rate cap set in 2008
Source: Center for Responsible Lending
The Springfield News-Sun has tracked the debate over the payday loan industry and its affects on residents for several years, including stories digging into the fees and new laws.