WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) today praised the Consumer Financial Protection Bureau’s (CFPB) proposed rules to rein in predatory payday and car title loans that often keep low-income consumers trapped in a cycle of debt.
“Ohioans have made it clear that they want protection from predatory payday and car title loans that trap many low-income families in a vicious downward spiral of debt,” said Brown, ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “Today’s action will help rein in this epidemic that saddles borrowers with triple-digit interest rates and costs Ohioans over $500 million in fees alone each year. I will fight attempts to weaken these sensible rules and I will make sure there are no loopholes that would allow lenders to keep exploiting struggling Ohioans.”
Brown has consistently pushed the CFPB to combat deceptive and abusive practices in the payday loan market that prey on low-income individuals and families who are unable to repay loans in full. Last June, he helped lead a letter from more than 30 Senators to CFPB Director Richard Cordray urging the agency to establish the strongest rules possible to curtail predatory lending in Ohio and nationwide.
In the United States, there are now more payday lending stores than McDonald’s or Starbucks franchises. 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 Center for Responsible Lending issued a report in November that exposed 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.
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 64 percent of Ohioans voting in favor of the 28 percent APR limit.
But as the Center for Responsible Lending’s report showed, payday lenders have dodged the law by switching their state licenses to operate as either mortgage lenders or credit-service organizations. 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, according to the report.
Brown has long urged 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, Brown chaired a hearing on payday lending in the Senate Banking Committee and called for the CFPB to curb abuse in the payday loan market. Additionally, Brown has supported the Department of Defense’s implementation of the Military Lending Act, which protects servicemembers from payday loans.