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Daily Newscasts

Payday Lending Rules Welcomed with Caution in Ohio

About 12 million Americans borrow cash from a payday lender each year. (cohdra/morguefile)
About 12 million Americans borrow cash from a payday lender each year. (cohdra/morguefile)
June 7, 2016

COLUMBUS, Ohio - Federal measures to rein in the payday-lending industry are being met with cautious optimism in Ohio.

It's the first time the Consumer Financial Protection Bureau has proposed rules to regulate the small-dollar loan industry, which charges interest rates of more than 300 percent in some cases.

Bill Faith, executive director for the Coalition on Homelessness and Housing in Ohio, says under the new rules, lenders would have to verify a customer's income to confirm their ability to repay a loan.

But he explains there are some loopholes lenders can claim that their ability to collect payment from a customer in the past meets the ability-to-repay requirement for future loans.

"The payday lender still would be able to do six loans without even having to look at the borrower's ability to repay," says Faith. "No underwriting to make sure the consumer could afford the loan. We should look at the borrower's ability to repay for every loan, make sure they're not getting overextended or into trouble."

The payday-lending industry maintains the proposed rules would be a blow to consumers, by limiting credit for those who use payday loans to cover unexpected expenses or a budget shortfall.

An estimated 12 million Americans a year borrow from payday lenders.

Perry Green, 30, says he was once caught up in the so-called "debt trap," after taking out a small loan. He explains he didn't have enough cash to pay his rent and needed a short-term solution. But with a student loan and other debts, Green says one payday loan turned into many.

"It was frustrating to keep going back, because I would need to continue to borrow for those expenses, and it turned into an endless cycle of borrowing," he says. "I spent almost $1,000 on fees and interest alone, although I originally just needed to borrow $300."

The proposed rules also would curb the number of times a loan could be rolled over into a new loan.

According to the Center for Responsible Lending, payday lenders got over $500 million from Ohio customers last year, more than twice the fees they collected in 2008.

The Consumer Financial Protection Bureau is taking public comments on the proposed rules through this fall.

Mary Kuhlman, Public News Service - OH