Payday Loans in Ohio: Subprime Report
Ohio is known for many things: rock and roll, football, and many heroes of aviation and space travel. But among all the fun and innovation, more than 15% of Ohio residents are living at or below the federal poverty line. To make matters worse, Ohioans who graduated from college are each sitting with an average of $30,239 in student loan debt.
Due to all this financial strife, it may be tempting for cash-strapped Ohio residents to turn to predatory payday or title loans in order to make ends meet. But people who are thinking of going this route should be careful. Payday and title loan borrowers are often worse off financially than they were when they took out their loans and can get easily trapped in a never-ending debt cycle.
Payday Loans in Ohio
A payday loan is a type of short-term, high-risk loan that’s typically taken out by people with bad credit or no credit. While most lenders won’t lend to borrowers whose credit is less than stellar, payday lenders don’t check credit. Instead, they ask borrowers to use their next payday as collateral, and have them fill out a post-dated check in the amount of the loan, plus interest. If the borrower fails to pay back their loan before the date on the check (which is typically their next payday), the payday lender will cash the check.
About 1 in 10 Ohio residents (or 1 million people) have taken out a payday loan in the past year. According to Pew Charitable Trusts, the typical payday borrower in Ohio earns about $30,000 per year and uses payday loans to cover recurring expenses, such as rent, mortgage payments, groceries, and utilities. Pew data also shows that Ohio residents are borrowing an average of $300 per loan, which costs them an average of $68 per 2-week pay period, or $680 over only 5 months (which is more than double the original loan amount).
Number of Payday Lenders: 1,300
Average APR: 591%
Number of Payday Lenders: 646
Average APR: 390%
The History of Payday Loans in Ohio
While a 2008 legislative crackdown on payday lending in Ohio set up strict laws around consumer protection in the state, payday lenders are still allowed to charge borrowers nearly 600% APR.
Through the Ohio Short-Term Loan Act, lawmakers capped annual percentage rates at 28%, restricted maximum loan amounts to $500, and gave Ohio payday borrowers at least 31 days to pay off their loans instead of 2 weeks.
However, under Ohio’s Mortgage Lending Act (MLA), payday lenders are allowed to register as mortgage lenders, which aren’t subject to payday lender fee limits. In order to avoid the fee caps imposed by the Short-Term Loan Act, payday lenders began registering as mortgage lenders, a move that made the letter of the law nearly impossible to enforce. As a result, payday loans in Ohio are among some of the country’s most expensive, with an average annual percentage rate (APR) of 591%, higher than any other neighboring state.
Lenders have also lobbied for the Credit Service Organizations Act, which defines a new kind of payday loan broker. This act allows payday loan companies to tack on a large fee that’s technically separate from the interest rate, allowing them to charge much more in effective interest than would otherwise be allowed.
In 2014, the Ohio Supreme Court found that payday lenders are not required to obtain licenses under the Short-Term Loan Act and that they can continue registering as mortgage lenders under the MLA. In the decision, one of the justices noted that not one single payday lender was registered under the Short-Term Loan Act.
Lawmakers in Ohio attempted to improve the lives of residents by creating a 28% cap on payday loan interest rates. But payday lenders aren’t legally required to comply with this law, so they have continued to charge interest rates that frequently trap payday borrowers in Ohio in a cycle of crushing debt.
- Maximum Loan Amount:$500
- Loan Term:Minimum: 31 days
- Maximum Finance Rate and Fees:28% annual interest
- Finance Charge for 14-day $100 loan:$1.08
- APR for 14-day $100 loan:28%
- Maximum Number of Outstanding Loans at One Time:One, four per year
- Rollovers Permitted:None
- Cooling-off Period:2 loan limit in 90 days
- Repayment Plan:Yes, 60 days, no fees
Title Loans in Ohio
Title loans are similar to payday loans, but instead of using a paycheck as collateral, title loan borrowers use their cars as collateral. The lender evaluates the value of the vehicle and lends the borrower an amount based on that number. Typically, title loans are for more money than payday loans, and if a title loan borrower fails to pay back their loan before their term is up, the title lender can repossess their vehicle.
While the Short-Term Act was created in 2008 to put a cap on interest for payday lenders, title lenders have never been subject to that law. Instead, title loans in Ohio can operate as a Credit Services Organization or a Mortgage Lender.
In 2016, the total volume of title loans in Ohio was $141,447,332, with an average loan amount of $1,042 per borrower. Title loan borrowers typically refinance their loans at least eight times, which means that the typical title loan borrower will pay loan fees nine times on a single title loan.
The History of Title Loans in Ohio
According to the Consumer Financial Protection Bureau (CFPB), a typical small consumer loan borrower gets stuck in 10 loans a year—one after the other. As with payday loans, title lenders are able to evade consumer protections through a loophole in the laws. Despite Ohio Legislature’s best efforts, consumers can still take out title loans in Ohio. Title lenders in the state exploit Ohio’s Second Mortgage Loan Act and Ohio’s Credit Services Organization (CSO) Act to continue lending with no limits on interest or fees.
Every year, between 5% and 9% of borrowers lose their vehicles to auto title loans in Ohio. Even if they don’t lose their vehicles, most title loan borrowers in Ohio will be stuck in their loans for months at a time, racking up more interest and more fees as time goes on.
Ohio Title Loan Restrictions
The maximum amount that an Ohio consumer is allowed to borrow is $800 for a maximum term of 6 months and an interest rate cap of 28%. Ohio’s Short Term Act specifically prohibits lenders from accepting car titles as collateral for short-term loans. However, lenders get away with accepting car titles for short-term loans, and the interest is 300% or higher.
Do yourself a favor… keep your vehicle title and find alternative options for loans when you’re short on cash.
Regulating Payday and Title Loans in Ohio
If you’ve found yourself stuck in a predatory payday or title loan trap, the first thing you need to do is remember that you have rights. If your lender has behaved in a way that violates state law, reporting them to the right authorities could help prevent other borrowers from dealing with them in the future.
How to Report a Lender in Ohio
Payday lenders in Ohio can either collect on loans without legal assistance, or they can sell the debt. However, under section 1321.45 of the Payday Loan Laws, collections agencies acting on behalf of payday lenders must properly identify themselves to the borrower, their family, their employer, or their friends. Phone harassment and calling after 9 p.m. is against Ohio Payday Loan Laws.
If you have been harassed via phone calls, here are a few things to keep in mind the next time you receive a call:
- Ask the caller for their name, company, street address, and telephone number. Be sure to tell the caller you will not discuss any debt until you get a written “validation notice.” Don’t pay if the caller refuses.
- Put your request in writing. The Fair Debt Collection Practices Act (FDCPA) requires any debt collector to stop calling if you ask in writing. If the debt is accurate, sending such a letter won’t eliminate the debt, but it will stop the calling.
- Don’t give or confirm any personal, financial, or other sensitive information (protect yourself).
- Contact your creditor to discuss the debt.
- Report the call to the Federal Trade Commission and the Ohio Attorney General’s office. Contact Ohio Attorney General Mike DeWine (@OhioAG) to report tips and scams by visiting his website at: http://www.ohioattorneygeneral.gov/. Next, scroll to the bottom of the page and click “File a Complaint” under the “Services” directory. You will be directed to fill out an online complaint form. You can also contact the Attorney General’s Office by calling (800) 282-0515.
Additionally, online lenders or any storefront businesses that have no license cannot file any legal actions against borrowers who don’t repay their loans, because those transactions are considered null or void. If you’ve dealt with an unlicensed lender in Ohio and are being pressured to pay back your debt, it’s important to understand that you are not legally obligated to do so. Report those lenders and save others the hassle.
For assistance with predatory lending issues, you can also contact the Ohio Division of Financial Institutions, which is located at 77 South High Street, 21st Floor Columbus, OH 43215 and can be reached by calling (614) 728-8400. You can also contact the Ohio Poverty Law Center, which is a nonprofit law office advocating for policies to protect and expand the legal rights of low-income residents of Ohio. Ohio Legal Services also provides counseling on payday and title loans as well as additional information on what to look out for and how to deal with predatory lenders.
Consumer Protection in Ohio
By identifying the warning signs of predatory lending, knowing Ohio state laws, and understanding how to report a lender who is breaking the law, you can help lawmakers take strides in the creation of new laws to protect Ohio consumers. While these changes won’t happen overnight, the battle is worth fighting for the residents of Ohio.
Guides to Payday and Title Lending in Ohio Cities
You know predatory lenders in Ohio are a problem. But what about at the city level?
Check out these payday and title loan guides for the following cities in Ohio…
- “The Ohio Poverty Report” Development Services Agency. Accessed February 21, 2017. https://www.development.ohio.gov/files/research/p7005.pdf
- “Project on Student Debt” The Institute for College Access & Success. Accessed February 21, 2017. https://ticas.org/posd/map-state-data#overlay=posd/state_data/2017/oh
- “Ohio State Information” Payday Loan Consumer Information. Accessed March 6, 2017. http://www.paydayloaninfo.org/state-information/43
- “State Debt” Ballotpedia. Accessed February 21, 2017. https://ballotpedia.org/State_debt
- “McDonalds vs. Payday Lenders” California State University Northridge. Accessed February 21, 2017. http://www.csun.edu/~sg4002/research/mcdonalds_by_state.htm
- “Ohio Has the Highest Payday Loan Prices in the Nation” The PEW Charitable Trusts. Accessed February 21, 2017. http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2016/12/ohio-has-the-highest-payday-loan-prices-in-the-nation
- “Payday Lending in Ohio: How Lenders Get Around the Rules” NOLO. Accessed February 21, 2017. http://www.nolo.com/legal-encyclopedia/restrictions-payday-lending-ohio.html
- “Ohio State Information” Payday Loan Consumer Information. Accessed February 21, 2017. http://www.paydayloaninfo.org/state-information/43
- “Up to 591%: Ohio has highest APR on short term loans in U.S.” My Dayton Daily News. Accessed February 21, 2017. http://www.mydaytondailynews.com/news/591-ohio-has-highest-apr-short-term-loans/UqTAzYsHAnaHh58dt0PeAM/
- “Loophole for payday loans upheld by Ohio Supreme Court” Cleveland.com. Accessed February 21, 2017. http://www.cleveland.com/open/index.ssf/2014/06/loophole_for_payday_loans_uphe.html
- “Keys for Collateral: How auto-title loans have become another vehicle for payday lending in Ohio” Policy Matters Ohio. Accessed February 21, 2017. https://www.policymattersohio.org/research-policy/pathways-out-of-poverty/consumer-protection-asset-building/keys-for-collateral-how-auto-title-loans-have-become-another-vehicle-for-payday-lending-in-ohio
- “The Buckeye Burden: An Analysis of Payday and Car Title Lending in Ohio” Center for Responsible Lending. Accessed February 21, 2017. http://www.responsiblelending.org/payday-lending/research-analysis/crl_ohio_analysis_nov2015.pdf
- “Payday and Car Title Lenders Drain $8 billion in Fees Every Year” Center for Responsible Lending. Accessed February 21, 2017. http://responsiblelending.org/sites/default/files/nodes/files/research-publication/crl_statebystate_fee_drain_may2016_0.pdf
- “Pew Study Finds Auto Title Loans as Harmful as Payday Loans” Cleveland.com. Accessed February 21, 2017. http://www.cleveland.com/consumeraffairs/index.ssf/2015/03/pew_study_finds_auto_title_loa.html
- “Car Title Loan Law Chart” Loans.org. Accessed February 21, 2017. http://loans.org/auto/studies/car-title-state-laws
- “Payday Loans’ Debt Spiral to be Curtailed” New York Times. Accessed February 21, 2017. https://www.nytimes.com/2016/06/02/business/dealbook/payday-borrowings-debt-spiral-to-be-curtailed.html
- “Chapter 1321: Small Loans” LAWriter Ohio Laws and Rules. Accessed February 21, 2017. http://codes.ohio.gov/orc/1321
- “2012-2016 American Community Survey 5-Year Estimates, Income” U.S. Census Bureau. Accessed June 5, 2018. https://factfinder.census.gov
- “Ohio Payday Loan Law and Legislation” UStatesLoans.org. Accessed March 6, 2017. http://www.ustatesloans.org/state-ga.html
- “Ohio’s Payday Loan Law” Center for Responsible Lending. Accessed March 6, 2017. http://www.responsiblelending.org/payday-lending/policy-legislation/states/pa-OhioPayday-0606.pdf
- “Payday Loans” Ohio Department of Law Consumer Protection Unit. Accessed March 3, 2017. http://www.consumer.ga.gov/consumer-topics/payday-loans
- “Title Pawns and Cash Advances” Ohio Department of Law. Accessed March 3, 2017. http://www.consumer.ga.gov/consumer-topics/title-pawns-and-cash-advances
- “Driven to Disaster: Car-Title Lending and Its Impact on Consumers” CFA. Accessed February 15, 2017. http://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf
- “Pawnshops/Title Pawn” Department of Banking and Finance. Accessed March 3, 2017. https://dbf.Ohio.gov/pawnshops-title-pawn