Reining in the Loan Sharks

Until June, payday lenders in Ohio were free to pursue their predatory business model: They made two-week loans, ranging from $100 to $800, that trapped borrowers into a revolving series of loans from which they had little chance of escaping.

In testimony to the Ohio general assembly, victim after victim stated that a typical initial loan of $300 ending up resulting in thousands of dollars in fees and interest. Ohio was second only to Texas as the largest market for the industry; some 328,000 Ohi­oans were trapped each year, with an average of 12 loans per customer. Payday lending stores took in more than $2 billion each year in the state.

But in June all that changed, and Ohio consumers celebrated a major public policy victory, when Gov. Ted Strickland signed HB 545 into law. The bill was the culmination of three years of tireless advocacy by the 246-member Ohio Coali­tion for Responsible Lending (OCRL). The coalition is comprised of faith-based groups, consumer and housing advocates, community action agencies, labor unions, and health and human service providers.

Ohio now has one of the toughest laws against predatory payday lending in the country. The law caps interest rates for small loans at 28 percent, down from the astronomical 391 percent that lenders were previously able to charge. In addition, a person cannot borrow more than $500. Loan terms must be at least 31 days, as opposed to the two weeks previously permitted, and a borrower is limited to four payday loans per year. The bill also bans Internet lending. As Strickland put it, “We will not tolerate individuals being exposed to exorbitant rates.”

Getting this law was an uphill battle for advocates. During May, the state house was swarming with lobbyists for the industry. Senate testimony featured CEOs from major national payday lending corporations, and their employees packed hearing rooms.

A TURNING POINT in the campaign came when the Cleveland Plain Dealer disclosed that Otto Beatty, the husband of Ohio’s House Minority Leader Joyce Beatty, was registered in Virginia as a lobbyist for CheckSmart, an Ohio-based payday lender. Later, it was reported that the industry had tried to give the Legislative Black Caucus $5,000 toward a golf outing, and that Otto Beatty had hosted a retreat, at which various state issues were discussed, for House Democrats in August 2007. Until these disclosures, many House Democrats were less than enthusiastic about imposing a substantive interest rate cap on payday lenders, the centerpiece of the legislation.

Momentum for reform began to pick up. Soon after the Beatty revelation, Speaker of the House Jon Husted, a Republican, signaled his support for an interest rate cap. Later, the governor went on record in support of a 36 percent rate cap.

Throughout the process, the OCRL fostered a bipartisan approach to resolving the issue. In addition to the speaker and the governor, Rep. Chris Widener (R-Springfield), chair of the Financial, Institutions, Real Estate, and Securities Committee, was centrally involved as author of the bill and a leader in its passage.

A consistent message throughout the nine months of the legislative process was that payday lending is a moral, as well as an economic, problem. Clearly, legislators understand that this is an issue that cuts across faith and political lines.

Shortly after the Ohio Senate overwhelmingly passed the bill, several payday lenders announced that they would close their stores and move out of the state. But other payday lenders plan to gather petition signatures to place a reform-repeal referendum on the November ballot. In response, the OCRL intends to develop a grassroots campaign—relying on the opinion leaders, including churches and the editorial boards of major Ohio newspapers, who helped bring about this June’s reform victory.

Tom Allio, director of the social action office of the Catholic Diocese of Cleveland, is chair of the Ohio Coalition for Responsible Lending and a Sojourners board member.

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