Payday loans still here, still hurting people

8:26 PM Saturday, November 14, 2009

Sometimes it may take two stakes through the heart.

Such is the problem of payday lending.

Despite the new Ohio law that limits short term loans to less than loan shark interest rates, the companies have come back with a new idea: Go light on interest and start charging hefty fees.

It’s working. Before the law took effect, the payday industry had been issuing dire warnings that it would close up the industry’s storefronts across the state if the law was allowed to stand.

They spent millions telling that story to Ohio voters last year for a referendum on the law and the voters still said payday loans should end. In fact, an overwhelming 64 percent said the loans should stop.

Look around. About half of these businesses didn’t go anywhere. We count at least 10 storefronts in Springfield.

What happened is the people who figured out ways to trap people in never-ending loans simply entered a few state regulatory loopholes and emerged as lenders who charge fees instead of the 391 percent interest rate they had been getting.

They skirt the law in a couple of ways.

A few registered as a Credit Service Organization and under guise of helping someone repair their credit rating arrange to broker a loan with a third party. The fee they charge ends up far greater than 391 percent they were getting before last year.

Many payday lenders refiled not under the new Check Cashing Loan Act, but under the Small Loan Act or the Mortgage Loan Act, designations never meant for short term loans.

Lenders started engaging in practices that seem outrageous. For example, they no longer hand a borrower cash, they hand them a check or money order. Then they make the customer cash it on the spot — for a fee. (The Ohio Department of Commerce would like to be alerted if this has happened to anyone here. Call 614-728-8400.)

What’s to be done about this is open to debate.

The Ohio Coalition for Responsible Lending, which was behind the effort to rein in payday lenders last year, is now backing House Bill 209. The bill would close the loopholes and could emerge from the Ohio House early next month.

It would:

• Ban the practice of making the borrower pay a fee to cash the loan check before the customer can leave the store.

• Limit origination, credit check and credit service fees on top of the 28 percent interest allowed for loans lasting less than 30 days.

• Prohibit brokering of loans, a practice that allows lenders to sidestep Ohio laws.

State Sen. Chris Widener, R-Springfield, who introduced last year’s bill when he was a state representative, believes the current law would be sufficient if state agencies would only enforce it.

Widener argues that the Ohio Department of Commerce has the power to move against abusive business practices such as charging a fee to cash a loan check.

He says the Republican majority controlling the Senate is unlikely to back HB 209.

It doesn’t matter to those caught in the loan trap how this is stopped. It just needs to stop.

Payday loans take people in a bad financial position and turn it into an impossible financial position.

Taking advantage of people desperate for financial help is not a business. It’s extortion.

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