Local church leaders want Springfield to support proposed regulations for payday lending centers, which they say are harming the working poor.
However an industry spokesman says payday loans provide a service to customers who often don’t have easy access to traditional banks.
Central Christian Church Pastor Carl Ruby has organized a community forum on payday lending. It will be held at 7 p.m. Wednesday at Central Christian, 1504 Villa Road. The meeting will include representatives from U.S. Sens. Sherrod Brown and Rob Portman’s office, the Ohio Attorney General’s Office and Springfield Mayor Warren Copeland.
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 Center for Responsible Lending report released last year.
The industry has used loopholes to charge interest rates averaging more than 300 percent, the report argues, despite reforms enacted in 2008.
Google announced earlier this month that it was banning all payday loan ads from its website.
Ruby has been concerned for some time about the affect of payday loans, he said, and decide to push for change after investigating the costs charged to customers.
Springfield has at least 18 loan centers, he said, many clustered together in poorer neighborhoods.
“The vast majority of their profits come from trapping people in cycles of debt they can’t get out of,” Ruby said.
The loans are necessary because a quarter of the people in Ohio are either “unbanked or underbanked,” said Pat Crowley, a spokesman for the Ohio Consumer Lenders Association, which has more than a hundred members in Ohio.
“A lot of them have nowhere else to turn and they don’t want to deal with banks,” Crowley said.
The fees are transparent, said Crowley, and customer know what they’re paying, generally $15 per every $100 borrowed.
“They understand that and they need the service,” he said. “They certainly don’t want somebody to take it away from them.”
If short-term loan centers are taken away, people will turn to Internet lending services — which are unregulated and off-shore, Crowley said.
“Who knows where their information is going,” he said.
People can also try to pay a bounced check fee or ask relatives for money, Crowley said, but that’s not always possible.
“Our customers need somewhere to go and there are no alternatives,” Crowley said.
Springfield Church leaders are working on a faith-based alternative to payday lending, Ruby said, which will be discussed at the forum.
“It won’t be an answer to everyone in Springfield who wants to take out a loan,” he said, “but it could at least provide some relief for people who are being helped by some of the churches in town.”
He’s working with a national organization Stop the Debt Trap to request Springfield city commissioners pass a resolution of support for new proposed regulations that will be released by the Consumer Federal Protection Bureau next month.
The recommendations include requiring banks to verify borrowers’ ability to pay back the debt, payday loan centers to require reasonable repayment plans and prevent loan centers from making automatic withdrawals from borrowers’ bank accounts.
Earlier this month, Ruby and other church leaders asked city commissioners to support the regulations and consider local legislation on the issue.
Ohio has more than 830 storefronts that offer payday or car title loans, most of which offer both forms of loans, according to the Center for Responsible Lending report.
The center reported earlier this month that one in five borrowers eventually had their cars seized by auto title loan lenders and more than two-thirds of its business come from borrowers who take out seven or more consecutive loans and remain in debt for most of the year.
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 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.
As a young airman in the U.S. Air Force 20 years ago, New Day Christian Fellowship Senior Pastor Derek Drewery, now 39, borrowed a few hundred dollars from a payday loan center in Fairborn.
“I was young and I didn’t think to ask questions,” said Drewery, now a Springfield resident. “When I went to pay it back, it was an astronomical amount compared to what I borrowed.”
It began a cycle of nearly 10 months of loans, he said.
“It was really a depressing point,” Drewery said. “I was stuck … I was churning butter in that place, borrowing this week to pay last week.”
Eventually, it got to a point where he had to suck it up, he said, and wasn’t buying groceries until he received money from his parents.
Common sense rules must be enacted by government leaders, Drewery said. He hopes his story will catch the ear of someone struggling.
“Maybe out of 100 there are two or three you can help,” Drewery said.
The Springfield News-Sun provides complete coverage of issues that affect jobs and the economy in Springfield, including recent stories on gas prices and the Dole listeria outbreak.
By the numbers
$500 million: Fees charged by the payday and car title loan industry in Ohio per year.
$185 million: Fees charged to Ohio residents by payday loan lenders last year.
830: Estimated number of storefront in Ohio that offer payday or car title loans.
Source: Center for Responsible Lending