Payday lending

MEGAN BASHAM, HOST: It’s Thursday, July 19th, 2018.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Megan Basham.

NICK EICHER, HOST: And I’m Nick Eicher. First up on The World and Everything in It: So-called payday lending.

In the wake of the 2008 financial crisis, Congress passed a comprehensive regulatory overhaul. They named it after its two main sponsors: Senator Chris Dodd and Congressman Barney Frank. One provision of the Dodd-Frank law spawned a new government agency, the CFPB, the Consumer Financial Protection Bureau.

And one part of its mandate is to regulate payday lending.

BASHAM: What payday lenders do is make available mostly short-term, high-cost loans to people facing financial emergencies.

New rules passed under the Obama administration mandated that lenders do more to ensure their customers can afford what they’re borrowing.

Republicans have taken issue with not only with CFPB rules—but the existence of the agency itself. They say it lacks accountability and is essentially writing laws that should be left to Congress.

LOVE: Should the American people not be concerned that your agency can spend hundreds of millions of dollars each year, employ 1,500 federal bureaucrats that have the power to directly affect the personal finances of every single American, and yet unlike any other federal agency, is not accountable to anyone?

EICHER: That was Utah Congresswoman Mia Love grilling former CFPB director Richard Cordray at a hearing last year.

It came as no surprise, then, when Mick Mulvaney, President Trump’s pick to lead the bureau, made big changes.

Among other things, Mulvaney announced plans to roll back those new payday lending rules. The regulations are still set to take effect next summer. But uncertainty over them is sparking action in some state legislatures.

BASHAM: WORLD Radio’s Maria Baer picks up the story in Columbus, Ohio.

MARIA BAER, REPORTER: It’s a humid summer night on Columbus’ south side, a notoriously impoverished area peppered with fast food restaurants and old cigar shops. A woman named Ebony walks out of CheckSmart. She’s just taken out a short-term loan.

EBONY: Oh, I needed some money for some bills today.

Ebony doesn’t want to say the amount of her loan, and she can’t remember the interest rate. But she says it’s fair. She does this in emergencies.

EBONY: Every once in a blue moon – like when need be, but…

Many people like Ebony use payday loans when facing a financial crisis, but the practice has long been controversial. Critics say lenders prey on poor Americans and create cycles of debt.

That’s why House Bill 123 is working its way through the Ohio Legislature with a broad coalition of support. It includes strict regulations that would shake up the state’s booming payday loan industry—which once boasted more stores in Ohio than there were McDonald’s locations.

Democrat Mike Ashford and Republican Kyle Koehler have sponsored the legislation. A financial think tank called Pew Charitable Trusts helped them draft the bill.

Pew’s Nick Bourke says it would reign in a largely unregulated industry.

BOURKE: So this is loans up to $1,000, HB 123 makes sure that all of those loans will have important features: affordable payments, reasonable time to repay, it changes the pricing to make the pricing on small loans in Ohio among the lowest in the country for any payday loan market.

Pew researchers found Ohio had the nation’s highest average interest rate on payday loans, roughly 591 percent. That means on a $2,500 loan, the borrower could end up paying back nearly $4,000.

H.B. 123 would cap interest rates for short-term loans at 28 percent. It stipulates that a borrower can’t owe more than $2,500 in principle at any one time. And it says that on most short-term loans, the interest rate can’t exceed seven percent of the borrower’s monthly net income.  

Ohio isn’t the first state to confront payday lending. In 2010, Colorado passed a similar law. Pew’s Nick Bourke says Ohio’s bill is stronger, so he’s hoping the Buckeye State will be a model for the rest of the country.

BOURKE: There are some other states that have already shown an interest in reforming their payday loan markets. Recently states like Nebraska, and Alabama and Hawaii, for example, have had hearings and have introduced bills.

Bourke says Pennsylvania and West Virginia implemented such stringent payday lending laws that they’ve effectively wiped out the industry there. He says that’s not the goal of H.B. 123. Still, he concedes that some of Ohio’s stores will likely close.

BOURKE: Some stores will go out of business. But a lot of other stores will remain open, and those stores will serve, in Ohio, likely twice as many customers per store.

H.B. 123 began with a phone call from a concerned pastor.  

RUBY: So I started noticing more and more payday loan stores in our city.

Carl Ruby pastors a small evangelical church in the rural town of Springfield, Ohio. The church hosted a community forum about two-and-a-half years ago to educate the congregation on payday loans and how they can trap people into debt. He was surprised to see over 100 people show up.

That’s when he called his local representative— Kyle Koehler —who became one of the bill’s sponsors. Ruby recruited other pastors for the effort—creating a small coalition of Christian advocates.

Ruby says the story of the week of Jesus’ death inspired his actions.

RUBY: The very first thing Jesus does when he gets to Jerusalem, is He takes on people who were ripping off the poor… And I thought Ok, if Jesus, during the last week of his life, took the time to address this issue, then as a Bible-preaching pastor I have to take the time to take on this issue.

The Ohio House is interrupting its summer recess to vote on the final version of the bill next week. It’s likely to pass—and many expect Governor John Kasich will sign it into law.

For WORLD Radio, I’m Maria Baer, reporting from Columbus, Ohio.

(Photo/Associated Press) This Nov. 6, 2008 file photo shows a customer entering a Payroll Advance location in Cincinnati, Ohio.

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