Right now, there are more payday loan stores in the United States than there are McDonald’s or Starbucks stores. This industry continues to prey on the people of Ohio, and new evidence shows its reach is spreading across our state.
For years, payday lenders have marketed their products as quick, one-time solutions to help people get through tough times and financial emergencies. But in reality, consumers use payday loans to cover basic expenses like groceries, bills, and rent.
Last year, the Consumer Financial Protection Bureau, or CFPB, found that four in five payday loans are rolled over or renewed, trapping borrowers in a cycle of debt. The average borrower ends up paying more in fees than they originally borrowed. According to a multi-year survey conducted by the Pew Charitable Trusts, borrowers take out an average of eight payday loans per year, spending $ 520 in interest on a $ 375 loan.
The Ohio General Assembly and Ohio voters have both passed laws to limit triple-digit interest rates and the deceptive practices used by these lenders. But payday lenders have stayed one step ahead of the sheriff, bypassing existing consumer protections by revamping their business practices to fall under another section of the law. A new report from the Center for Responsible Lending shows how payday lenders and auto title lenders have exploited loopholes in Ohio law to continue to charge borrowers triple-digit interest rates.
And the payday loan industry continues to grow.
In Ohio, there are now 836 stores generating more than $ 500 million in abusive loan charges each year – double what they collected in 2005, according to the report. Auto securities lending accounts, which also carry triple-digit interest rates, account for $ 318 million of those fees. This can be a serious problem for borrowers who rely on their cars to get to work.
That’s why Congress created the CFPB in 2010 – to fill gaps in oversight of these obscure financial markets and protect the 43% of U.S. households who have used such loans at some point in their lives.
In June, I sent a letter to CFPB urging them to put in place the strictest protections possible for consumers to ensure that these products are affordable and sustainable. It has now been more than five months since this letter, and it is time for the CFPB to act.
This means that the final rule should include limits on costs, requirements to ensure consumers can repay their loans, products with longer repayment terms and the ability to repay the loan principal.
Ohioans shouldn’t be trapped in a never-ending cycle of debt by predatory loans.