"Payday Lending in Ohio"May/June 2007 issue of Poverty & Race
The last 15 years have witnessed a huge growth in what is sometimes called the “fringe” financial services industry, including subprime mortgage lending, payday lending, rent-to-own stores and similar businesses. Past research into many of these industries has shown that they often target not only low-income individuals but also racial and ethnic minorities.
The Housing Research & Advocacy Center, a fair housing organization located in Cleveland, Ohio, has conducted research into mortgage-lending trends in northeast Ohio and statewide for a number of years. However, it increasingly became clear to us that many of the individuals who were being exploited by predatory lenders were also falling victim to the huge growth in the state payday lending—short-term loans (sometimes needed for emergency purposes, such as to prevent eviction or utility shut-offs) backed by a forthcoming regular paycheck, the hidden mechanics of which create extraordinarily high interest rates. Based on our knowledge of the industry and its practices in other locations, we also expected to find such stores disproportionately located in minority communities.
Although Ohio has a criminal usury statute that generally prohibits loans at interest rates greater than 25%, the law allows the legislature to create exceptions. One such exception was created when the state’s Check-Cashing Loan Act became effective on December 5, 1995.
Under the act, Ohio allows short-term payday loans for up to $800. While Ohio law sets maximum rates for both the interest charged and origination fees, few lenders set their rates below these “caps.” For loans of $500 or less, lenders may charge an origination fee of $5 for each $50 borrowed; for loans of between $501 and $800, the origination fee remains $5 for the first $500 borrowed and $3.75 for per $50 for amounts between $501 and $800. In addition, lenders are allowed to charge a maximum interest rate of 5% for each month or fraction thereof. This means that for a 14-day loan of $500, a borrower must repay $575, which translates into a 391% Annual Percentage Rate (APR). For a 14-day loan of $800, the rate is 367%.
In order to undertake the research, we partnered with Policy Matters Ohio, an economic policy research organization also located in Cleveland. Funding for the research was provided by PRRAC and the Catholic Campaign for Human Development.
Focus and MethodologyPayday lenders are required to register with the Ohio Department of Commerce’s Department of Financial Institutions. The DFI maintains a list of all currently registered lenders, including their name and address. Ohio does not have a database that would allow us to determine who uses payday lenders, how much their clients borrow or how often they obtain loans.
For the initial research, we decided to focus on four factors: (1) the growth in the number of payday lending stores; (2) which counties were being most affected; (3) whether the location of stores was correlated with the income and/or racial make-up of the census tract in which they were located; and (4) who the main lenders were in Ohio.
Project FindingsIn the past 10 years, Ohio has witnessed explosive growth of payday lending. In 1996, the state had 107 payday lending stores; by 2006, that number had grown to 1,562. Ohio now has more payday lending locations than McDonalds, Burger King and Wendy’s restaurants combined, a statistic that received widespread coverage in the media with the release of our report.
In 1996, payday lenders were concentrated in urban communities, such as Columbus, Cleveland, Cincinnati and Dayton, and there were stores in 21 Ohio counties. However, by 2006, the businesses had spread to all but two of Ohio’s 88 counties. Thirty-five of the counties had more than 10 locations, and 9 had 40 or more, including 183 in Franklin County (where Columbus is located); 160 in Cuyahoga County (Cleveland); and 123 in Hamilton County (Cincinnati).
Between one-quarter and one-half of the lenders in the top 10 counties were located in low- and moderate-income census tracts in 2006. However, we did not find the correlation we had expected between payday lending stores and the race of neighborhoods. While 31.9% of stores were located in predominantly African-American census tracts in Cuyahoga County and 22.0% were located in those tracts in Hamilton County, other counties did not show such a high correlation: Only 9.8% were located in African-American census tracts in Franklin County, and only 4.8% were located in such tracts in Montgomery County (Dayton).
We believe that these data reflect the fact that lenders have made inroads throughout the state. In addition, because Ohio does not require information on borrowers to be reported to the state, we are unable to determine if African Americans or other racial or ethnic minorities use them more often than whites.
While there were more lenders in absolute terms located in these large urban counties, an analysis of the number of lenders per-capita revealed that there are more in less populated, rural counties. Of the 10 counties with the highest concentrations of payday outlets per-capita, not one was a large urban county, and half were located in the southeastern part of the state.
The top 10 lenders in Ohio represented more than 55% of all payday lenders in Ohio and were dominated by large corporations, including Advance America Cash Advance Centers of Ohio, Inc. (179 stores); Cashland Financial Services, Inc. (138); Check into Cash Ohio, LLC (96); Valued Services of Ohio, LLC (96); and Buckeye Check Cashing, Inc. (94).
Dissemination and AdvocacyOur report, “Trapped in Debt: The Growth of Payday Lending in Ohio,” was released on February 22, 2007. It received widespread coverage in Ohio newspapers (Cleveland Plain Dealer, Toledo Blade, Akron Beacon Journal, Cincinnati Business Courier, Gongwer News, and the Hannah Report) and on radio (Statehouse News Radio, Ohio News Network Radio, WKSU, WCPN, WGFT). On March 38, 2007, the Cleveland PBS station (WVIZ) aired a 10-minute report on payday lending in Ohio, featuring the report co-authors, the head of the Ohio Coalition for Responsible Lending and an industry representative. In addition, numerous Ohio legislators and members of the newly-elected state executive branch, as well as local government officials, have contacted the authors and/or expressed interest in regulating the industry. Finally, report co-author David Rothstein of Policy Matters Ohio testified before the Domestic Policy Committee of the U.S. House of Representatives regarding the growth and detrimental impacts of payday lending and refund-anticipation loans (RALs) in Ohio.
The report has helped energize the newly renamed Ohio Coalition for Responsible Lending, which has been meeting monthly to build support for regulation of the industry. In late 2006, Congress responded to the large number of military families with payday loans by passing the Talent-Nelson amendment, which, when it becomes effective in October 2007, will limit the interest rate on loans to military families to 36%. The Coalition is currently working to develop legislation to limit payday lending in the state by imposing the Talent-Nelson limits on all loans in the state.
Contact: Jeffrey Dillman (email@example.com), Executive Director, Housing Research & Advocacy Center, 3631 Perkins Ave., Suite 3A-2, Cleveland, OH 44114, (216) 361-9240 Copies of the 19-page report, “Trapped in Debt: The Growth of Payday Lending in Ohio,” are available from the Housing Center’s website in PDF format: www.thehousingcenter.org, or from Policy Matters Ohio: www.policymattersohio.org.
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