Few stories at the Statehouse have been sorrier than the one involving payday lenders. In 2008, lawmakers acted aggressively and reasonably to curb the usurious practice of short-term lending. Ohio voters overwhelmingly rejected an effort to overturn the good legislative work. Then, payday lenders found a loophole, and soon they were back in business as usual, which is where they stand today.
The sorriest thing has been the passivity of lawmakers and the governor’s office. They were outplayed by payday lenders, but rather than reapply the mandate of voters by closing the loophole, they have done zilch. Even embarrassing exposure from the Ohio Supreme Court two years ago failed to spur action.
Thankfully, a bipartisan group of lawmakers has begun to talk about getting things right. State Reps. Marlene Anielski, a Walton Hills Republican, and Mike Ashford, a Toledo Democrat, have in mind legislation that would shut down the loophole, barring short-term, high-cost loans that trap vulnerable borrowers in a prolonged cycle of debt.
A recent analysis from the Pew Charitable Trusts reinforces the need to act. It found that payday loans in Ohio are the most expensive in the country, typically carrying an annual interest rate of 591 percent. That’s roughly what payday lenders were charging before lawmakers enacted their remedy eight years ago.
Pew found that the price to borrow from payday lenders in Ohio is up to four times higher than in other states. Consider that to borrow $300 for five months costs $680 in fees. The analysis added that the most likely borrower earns about $30,000 per year and uses the loan to cover recurring expenses such as rent and groceries. No surprise that borrowers find it difficult to get clear of the debt, or that they deserve a break, studies showing recent income gains largely have flowed to the highest rungs.
According to Pew, one in 10 Ohio adults, around 1 million people, has gained a payday loan.
The Pew study helpfully notes that Colorado has succeeded where Ohio has failed, providing a path forward. In 2010, Colorado ended the typical two-week payday loan and set up a six-month installment system at lower cost, without jeopardizing the availability of credit. The result has been savings of $40 million annually for consumers. The average loan payment covers 4 percent of a borrower’s paycheck — or far less than the 34 percent in Ohio.
The average cost in fees to borrow $300 for five months? In Colorado, it’s $172. It follows that borrowers there have a more realistic route out of debt, Pew reporting that 75 percent of such loans are repaid early.
Will Ohio be like Colorado and prove true to state voters, plugging the loophole payday lenders have been exploiting? One additional sorry factor is the position on payday lending taken by Cliff Rosenberger, the House speaker. He recently told the Columbus Dispatch: “I don’t necessarily know that we need to do anything at this juncture.” Really?