Payday lenders circumventing new Ohio law
Legislature working to close loopholes.
Thursday, October 1, 2009
(Columbus) - A report finds that payday lenders in Ohio are still charging exorbinant interest rates, even after a prohibitive law was passed last year.
The independent group Policy Matters Ohio has released analysis that shows lenders are circumventing the prohibitive law using the Ohio Mortgage Lending Act and the Ohio Short-Term Lending Act to charge comparable, if not higher rates that before Issue 5 was approved by voters in last November's election.
Researcher David Rothstein looked at the policies of 69 lenders throughout the state to explore payday loan costs, terms and conditions and found all payday lenders surveyed continue to make loans due on the borrower's next payday, which is typically less than or equal to fourteen days away. This is not in compliance with the Short-Term Loan act, which guaranteed borrowers at least 30 days to pay back loans and established other consumer protections to keep borrowers out of the debt trap.
Seven of the nine largest payday lenders issue the loan in the form of a check or money order and charge a cashing fee while another lender appears to be automatically including the fee and then issuing the loan in cash. By charging the borrower a 3 to 6 percent fee for cashing the lender’s own out-of-state check (a check that presents no risk to the lender of insufficient funds), the cost of a $200 loan can climb to higher than 600 percent APR.
Most if not all payday lenders are making larger loans than permitted under either the short-term loan act or the old payday loan law. Online loans, brokered through stores, carry larger principles and are even more expensive.
Seven of nine payday lenders surveyed accept unemployment, Social Security, or disability checks as collateral.
However, Rothstein's research did not uncover any illegal activity by payday lenders. Attorney General Richard Cordray has stated that lenders are circumventing the spirit of the law, but not doing anything illegal.HB 209 was recently introduced to attempt to close loopholes in the current law. Rothstein has testified as a proponent of the legislation.
The independent group Policy Matters Ohio has released analysis that shows lenders are circumventing the prohibitive law using the Ohio Mortgage Lending Act and the Ohio Short-Term Lending Act to charge comparable, if not higher rates that before Issue 5 was approved by voters in last November's election.
Researcher David Rothstein looked at the policies of 69 lenders throughout the state to explore payday loan costs, terms and conditions and found all payday lenders surveyed continue to make loans due on the borrower's next payday, which is typically less than or equal to fourteen days away. This is not in compliance with the Short-Term Loan act, which guaranteed borrowers at least 30 days to pay back loans and established other consumer protections to keep borrowers out of the debt trap.
Seven of the nine largest payday lenders issue the loan in the form of a check or money order and charge a cashing fee while another lender appears to be automatically including the fee and then issuing the loan in cash. By charging the borrower a 3 to 6 percent fee for cashing the lender’s own out-of-state check (a check that presents no risk to the lender of insufficient funds), the cost of a $200 loan can climb to higher than 600 percent APR.
Most if not all payday lenders are making larger loans than permitted under either the short-term loan act or the old payday loan law. Online loans, brokered through stores, carry larger principles and are even more expensive.
Seven of nine payday lenders surveyed accept unemployment, Social Security, or disability checks as collateral.
However, Rothstein's research did not uncover any illegal activity by payday lenders. Attorney General Richard Cordray has stated that lenders are circumventing the spirit of the law, but not doing anything illegal.HB 209 was recently introduced to attempt to close loopholes in the current law. Rothstein has testified as a proponent of the legislation.
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