Down the Rabbit Hole with Payday Lending
Those of you who read this blog have probably figured out that the continued existence of payday lending in the State of Ohio, despite legislative reforms in 2008, is a real sore point for me, and many other consumer advocates around the state. I have likened the various iterations of payday loans to Hydra, the mythical beast that grew two heads in place of every one that was cut off, making it almost impossible to kill. In Ohio, payday lenders are now pawn brokers, check cashers, mortgage loan lenders, small loan lenders, precious metal dealers, and credit services organizations. At least two companies are offering auto title loans – something that is strictly prohibited by the Short Term Loan Act – that Act under which not one lender is licensed. And if borrowers do not want to walk to a store front, one google of “payday” reaps hundreds of internet options – each claiming to be better and faster than the rest. This ever changing domain of lending is tough for states to get a handle on.
The federal Consumer Financial Protection Bureau (CFPB) began gathering information about the payday industry in January 2012 with a field hearing in Birmingham Alabama. In a countermove, the industry is pushing for federal legislation, HR 6139, known as the Consumer Credit Access, Innovation, and Modernization Act. This bill “[D]irects the Comptroller of the Currency to charter qualified nondepository creditors known as National Consumer Credit Corporations (Credit Corporations) to offer financial products or services.”. In short, this bill gives payday lenders a pass on CFPB authority, and an end run around state licensing and consumer protection laws. On July 24, 2012 a Deputy Comptroller for Compliance Policy from the Office of the Comptroller of Currency (OCC) testified before the Senate subcommittee hearing the bill, concluding: “…HR 6139 raises serious consumer protection, compliance, and safety and soundness issues by creating a new federal charter for companies concentrating on products and services most prone to abuse and that are most often targeted to minority populations, low-income neighborhoods, and communities with high concentrations of our military service members.” On October 5, 2012 41 state Attorneys General, including Mike DeWine, sent a letter to House and Senate leaders asking them to oppose HR 6139.
It is good we have advocates on the national front opposing this legislation, as well as other industry attempts to expand their scope and reach. For example, see the letter to the OCC urging the Comptroller to stop Urban Trust Bank from partnering with a payday lender and a pre-paid card issuer in order to evade state usury laws and make payday loans on prepaid cards.
Study after study confirms that a significant percentage of payday loan borrowers are borrowing because their expenses consistently exceed their incomes, a situation ripe for abuse. These high cost, short term loans are going to be on the market for the foreseeable future. Currently there seems to be no political will in Ohio to revisit this lending market. Nevertheless, we all need to be vigilant, and keep hacking away at the heads of the beast when we have opportunities to do so.