Payday Loan Times

Phil Betourne works full time at a grocery store in Canton and makes enough money to, in his words, “get by.”

But Betourne is not getting by. He’s falling behind. His unpaid public utility bills are piling up and he is facing foreclosure on his home.

Each month, Betourne signs his paycheck over to payday advance lenders, but the money he makes doesn’t cover the interest owed on short-term, high-interest loans.

When his wife was involved in an automobile accident, and banks would not lend him money, Betourne took out his first loan with a payday lender. One quick cash loan led to two, and two to four and now Betourne has 10 going simultaneously.

“I feel so stupid, but what was I supposed to do? Go out and rob a bank? I did what I thought was necessary,” he said.

Betourne is caught in a vicious cycle of borrowing, repaying and then borrowing again.

His story is emblematic of a growing problem in Ohio as the number of families with these short-term payday loans now exceeds 400,000, feeding an industry that has grown from 107 store fronts in 1996 to 1,586 a decade later with profits exceeding $290 million, according to Policy Matters Ohio, a Cleveland-based progressive research organization.

Critics argue payday lenders pick the pockets of the poor and the financially vulnerable with usurious loan origination fees and exorbitant interest rates of up to 391 percent.

The industry says no fax cash advance lenders are catering to customers who have nowhere else to turn and the annual percentage rates are exaggerated and misleading due to the short-term nature of the transactions.

Lawmakers get involved
The debate is only expected to intensify in the coming months as private discussions have been initiated among the highest levels of government and a broad-based organization of church and advocacy groups has emerged to draw attention to Ohioans caught in a debt trap.

In a recent private meeting with some of the largest mortgage lenders operating in the state, Gov. Ted Strickland asked one of the participants, Larry Litton, why Ohio suffered from some of the highest foreclosure rates in the country?

“He (Litton) did respond that [instant payday loan] lending was out of control,” said Strickland spokesman Keith Dailey who confirmed the story.

“There’s some congruence on that opinion that payday lending is a concern on its face as well as potentially in relation to the foreclosure rates in the state,” Dailey said.

Strickland has asked Ohio Department of Commerce Director Kim Zurz to meet with stakeholders and consumer groups to review the situation. Tom Allio, executive director for the Catholic Commission of Summit County, is chairing the Ohio Coalition for Responsible Lending, a statewide organization of 28 groups.

Allio said the coalition wants to educate opinion and state leaders, put a face on the problem and pass legislation that mirrors a federal law enacted last year geared toward military personnel that caps fast payday advance lending interest rates at 36 percent.

“We feel this amounts to legalized loan sharking,” Allio said. “Clearly, from a faith perspective, it is usury. Our mobilization in organizing on this is out of a concern for low-income working families.”

Allio said the perception has been the providers of bad credit cash loans are in poor urban areas, but the recent study by Policy Matters found the stores are in the suburbs, rural areas and small towns.

“Every member of the Ohio General Assembly has a stake in this issue,” Allio said. “I think the industry has gotten a free ride from the legislature at this point.”

Payday lending has been legal in Ohio since 1993.

Richard Keck, chief examiner for consumer finance at the state commerce department, said despite growth of the faxless payday loan industry, his agency has averaged fewer than 10 consumer complaints a year.

Keck said that might be due to a straightforward law that consumers understand.

“They pretty much know what the deal is,” Keck said.

Little oversight
The state licenses the lenders and runs background checks on the owners, but there is no requirement by the department to monitor their operations.

Keck said his office attempts to check all the lenders, but he has nine field examiners responsible for 8,000 businesses, including 1,586 payday lenders.

The fast cash loan stores can lend up to $800 at a time. The lender charges $5 for every $50 borrowed up to $500 and $3.75 for every $50 after that up to $800 in a transaction fee. The stores are then allowed to charge $5 on every $100 a month in interest.

Someone borrowing $800 for one month would pay $112 in transaction fees and interest.

“They are everywhere. They must be a profitable business. The number has never gone down,” Keck said.

Darryl Dever, a lobbyist for the Ohio Financial Service Centers Association, said the industry of payday loans has grown because people need money in emergency situations for short periods.

“People are only concerned about how much do I have to pay you back in two weeks? Banks and savings and loans and credit unions are not addressing these needs,” Dever said.

He said the industry is attacked for high interest rates, but it is less expensive for someone to pay $15 to borrow $100 for a month than to bounce a check, have their utilities turned back on or miss a credit card bill.

“I will tell you if the limit is 36 APR there will be no payday loans because you can’t exist that way. You’re talking about making $1 or $2 a loan,” Dever said.

He said banks, savings and loans and credit unions are not in the business because profits are too low and risks too high.

“The banks would do it today if it was affordable to them,” Dever said.

Bill Faith, Coalition on Homelessness and Housing in Ohio executive director, said 16 states prohibit payday lending and a number of others are moving to impose a 36 percent cap.

“My view is we don’t need these loans at all. We have plenty of access to credit,” Faith said. “As bad as massive credit-card debt can be it is nothing compared to the interest you are going to pay on these loans.”

Faith said he would like to see the legislature encourage mainstream financial institutions to develop short-term cash loans with reasonable rates.

“This notion that we need payday lending is entirely concocted. It’s like we need crack houses because a lot of people want crack,” Faith said.

Faith said more and more people are showing up at churches and food pantries because they are “jammed up” on payday loans.

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