Months after Ohio voters approved a law limiting interest rates that can be charged by payday lenders, the fallout continues.
“Demand doesn’t go away,” said Jeff Kursman, spokesman for Cincinnati-based Check ‘n Go, one of the nation’s largest short-term lenders. “People still have a need for short-term loans.”
Last November, 64 percent of the state’s voters favored approving an Ohio House bill capping payday lenders’ annualized rates at 28 percent. Legislators had passed the bill in June 2008.
The impact on the payday lending industry was swift. Already 700 of the 1,600 payday loan offices in the state have closed, said Kursman. Check ‘n Go has just 28 locations left in the state, down from 72 before the law changed, he said.
Payday lenders typically make two-week loans. Until the Ohio law changed, Check ‘n Go charged $15 per $100 loan. Extend that 15 percent over a year, and it’s an annual rate of 390 percent.
Opponents say that’s far too expensive and traps borrowers in a cycle of debt. But payday lenders say it’s unfair to view it as an annual rate, because borrowers are paying the loan back in two weeks. They also say they need to charge that much to cover costs.
Charges Less than Costs
Check ‘n Go’s cost to make a $100 loan ranges from $13 to $14, Kursman said. At a 28 percent annualized rate it can charge only $1.08 per $100 for a two-week loan.
“You’re not going to stay in business that way very long,” Kursman said.
But with people still needing the loans, payday lenders are finding ways around the changed law.
New Ways of Operating
Check ‘n Go started operating under Ohio’s Small Loan Act. That allows it to charge a fee of $30 on top of $5.40 in interest for a $505 loan that is its current standard. The $35.40 cost is less than half of the $75 it used to charge.
On top of that, though, it no longer gives out the money in cash. Instead, it issues a check. And if borrowers want Check ‘n Go to cash the check, it’ll charge them a 4 percent fee. That’s another $25.
Borrowers don’t have to cash the check there, Kursman said. Opponents claim some payday lenders require borrowers to cash the check on the spot and pay the fee. But Kursman said only about 40 percent of Check ‘n Go customers use its check-cashing service.
Either way, the cost is still too much, said Jean Ann Fox, spokeswoman for the Consumer Federation of America, a Washington, DC-based consumer advocacy group.
“Generally, this seems to be the pattern,” Fox said. “When states pass a law, lenders try to find loopholes to make very small loans at very high rates.”
That goes against what Ohioans voted for in November, said Suzanne Gravette Acker, spokeswoman for the Columbus-based Coalition on Homelessness and Housing in Ohio.
“Legislators passed this law, and the people spoke,” Gravette Acker said. “So there’s really no debate. It’s done.”
New Bill in Legislature
State Rep. Matt Lundy (D-Elyria) introduced a bill in June that would close some loopholes allowing companies to charge the additional fees. Lundy’s bill would prohibit short-term lenders from charging check-cashing fees for money they lent. That means lenders would be limited to charging just the 28 percent annual rate, or $5.40 on a $500 loan.
“Our costs are 12 times that,” Kursman said. He predicts the other 900 short-term lending stores in Ohio will close if Lundy’s bill passes.
Payday lenders in Ohio argue banks have filled the void since the law changed. They don’t fall under the same regulations, so a few have started offering direct deposit advances. They typically charge $10 for an advance of $100 for up to 30 days. Banks market them as loans at 120 percent annual rates.
States can’t regulate bank rates, but bills have been introduced in the U.S. House and Senate to cap rates at 36 percent per year.
“Consumers will lose access to a credit option that is less expensive than what the banks are charging,” Kursman said. “The banks charge what they do because that’s what it costs. We just want a level playing field.”
Steve Watkins ([email protected]) writes from Cincinnati.