WARREN, OH – U.S. Sen. Sherrod Brown (D-OH) outlined the latest effort to rein in predatory payday and car title loans that often keep low-income consumers trapped in a cycle of debt. Earlier this month, the Consumer Financial Protection Bureau proposed new rules to combat deceptive and abusive practices in the payday loan market. During the public comment period, Brown is urging Ohioans to share their experiences with financial stress, including using payday or short-term loans, and speak out in support of the proposed rule.
“Ohioans have made it clear that they want protection from these predatory lenders that trap many low-income families in this vicious cycle,” Brown said. “But the payday industry and its lobbyists will spend millions of dollars to try and roll back these protections for Ohioans. That’s why I am urging Ohioans to use this public comment period to speak out and make their voices heard.”
During a news conference at the YWCA of Warren, Brown was joined by Christina Sarno, a Warren County parent who was caught in a cycle of debt and Ginny Pasha, with Trumbull County United Way/Trumbull Partnership for Financial Empowerment. Brown also convened a group of community leaders and local advocates to discuss efforts to ensure that all Americans have access to affordable credit and the tools they need to build savings.
“The Trumbull County Partnership for Financial Empowerment was formed to give individuals and families the education and tools to make wise financial decisions,” Pasha said. “Financial products like payday lenders and auto title companies are enticing for those in immediate need but create dangerous situations for borrowers to where they fall deeper into debt from which they can’t get out. We all need to work together to stop the cycle.”
“The first time I had ever taken out a payday loan was when I had just had a baby and didn’t have enough money to meet my family’s needs at the end of the month,” Christina said. “This excitement was quickly over when I got my next pay check. I struggled for several months over and over again to pay off my initial loan. After receiving constant calls and having the store manager show up at my house to try to collect the money I owed, I gave up. At this point I had developed a lot of interest on the loan and owed more than I could possibly pay back on my income.”
Just days after the CFPB announced its restrictions on predatory lending, the Republican-led House Appropriations Committee advanced a bill that would block the consumer agency from implementing the new rules. Democrats opposed the legislation, which would also undermine the CFPB’s authority to protect consumers and weaken oversight of Wall Street. The bill is now awaiting action in the full House.
The period for the public to comment on the rule is underway and closes on September 14. Brown is encouraging Ohioans to comment by emailing FederalRegisterComments@cfpb.gov (Docket No. CFPB-2016-0025), visiting http://www.regulations.gov, or sending a letter to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NE, Washington, DC 20002.
According to a recent Federal Reserve report, nearly half of all Americans say they cannot pay for an unexpected $400 expense without selling something or borrowing money. In the United States, there are 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 new report last year showing that payday and car title lenders have exploited loopholes in Ohio state law to saddle low-income borrowers with triple-digit interest rates. The study found that there are 836 storefronts 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 – 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 2015 to CFPB Director Richard Cordray calling on the agency to propose strong rules to rein in payday lenders in Ohio and nationwide. 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, Senator Brown has supported the Department of Defense’s implementation of the Military Lending Act, which protects servicemembers from payday loans.