WASHINGTON, D.C. – Following a new report on the impact of payday and car title loans on Ohioans, U.S. Sen. Sherrod Brown (D-OH) today renewed his call for the Consumer Financial Protection Bureau (CFPB) to establish strong rules to combat predatory practices in the payday loan market. Brown was joined by Diane Standaert, the report’s co-author and director of state policy for the Center for Responsible Lending.
The Center for Responsible Lending issued a new report last week exposing how Ohio payday and car title lenders have sidestepped laws put in place to rein in their abusive practices. The study found that there are now 836 stores in Ohio generating more than $500 million in predatory loan fees each year – twice as much as they collected in 2005.
“Ohio payday lenders have stayed one step ahead of the sheriff,” Brown said. “The Center for Responsible Lending report shows how payday and car title lenders have exploited loopholes in Ohio law to continue to saddle low-income borrowers with triple-digit interest rates. Ohioans shouldn’t be trapped with a lifetime of debt from predatory loans. It’s time for the CFPB to act.”
“Payday and car title loans create a harmful debt trap and lead to a host of financial consequences, such as increased likelihood of overdraft fees and bankruptcy,” Standaert said. “These high-cost loans are draining twice as much from Ohioans today than a decade ago. The findings underscore the urgency of enforcing the voter-affirmed 28 percent rate cap, and for CFPB rules that require lenders to determine a borrower’s ability to repay the loan without refinancing or defaulting on other expenses, and establish an outer limit of 90 days in these loans to stop the debt trap.”
Many workers turn to payday loans to make ends meet. These loans can carry hidden fees and can have annual interest rates as high as 763 percent. A 2014 study by the CFPB found that four out of five payday loans are rolled over or renewed, trapping borrowers in a cycle of debt.
The CFPB is now considering new rules to address payday lending. Brown – the ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – helped lead a letter from more than 30 Senators in June to CFPB Director Richard Cordray calling on the agency to create strong rules to rein in payday lenders in Ohio and nationwide.
The Ohio legislature passed a law in 2008 that sought to put strong restrictions on the payday lending industry. The law placed a 28 percent cap on the annual percentage rate (APR) that payday lenders could charge the state’s borrowers. A subsequent ballot initiative to repeal the law failed, with more than 65 percent of Ohioans voting in favor of the 28 percent APR limit.
But as the new report from the Center for Responsible Lending shows, payday lenders have skirted the law by switching their state licenses to operate as either mortgage lenders or credit-service organizations. According to the report, fees charged on payday loans cost Ohioans $184 million a year; the fees charged on car title loans, which also carry triple-digit interest rates, cost Ohioans even more – about $318 million annually.
The report also pointed to a concerning new trend in Ohio: payday and car title lenders offering loans with multiple payments and longer terms, which end up costing consumers even more. In August 2015, more than 100 Ohio groups sent a letter to the CFPB expressing concern about this trend.
Brown has consistently pushed the CFPB to ensure that its small-dollar credit rules address the full range of products offered to consumers – specifically looking at the practices of loan companies offering auto title loans, payday loans, and installment loans. In 2014, Senator Brown chaired a hearing on payday lending in the Senate Banking Committee and called for the CFPB to enact strong regulation of payday lenders. Additionally, Brown has supported the Department of Defense’s implementation of the Military Lending Act, which protects servicemembers from payday loans.