Friday, November 19, 1999

Payday loans' high interest adds misery, lawmakers told

The Cincinnati Enquirer

        Mary Hurlburt has seen grown men so desperate to solve their money problems that they've broken down and cried like babies.

        A credit educator with the Consumer Credit Counseling Service of Greater Cincinnati, she told state lawmakers Thursday that stiffer regulations are needed to control the interest rates that check-cashing operations place on their quick-cash services.

        “I tell people that this is the most expensive money you will ever, ever get,” she told an all-Democrat panel composed of state Sen. Mark Mallory and Reps. Samuel Britton and Catherine Barrett, all of whom represent Cincinnati districts.

        “We can't judge how people spend their money,” Ms. Hurlburt added. “But people are using these (payday loans) to pay for rent and other basic necessities.”

        Public hearings are being held statewide as legislators try to root out whether this fast-growing industry is doing more harm than good.

        “Ohio has got to get some consumer protections for payday lending that results in poor residents losing hard-earned wages through excessive interest charges,” Mr. Mallory said. “Eighteen other states recognize the moral and economic devastation that comes from gouging workers already struggling to get by.”

        According to a 1998 report from the Consumer Federation of America, the annual percentage rate (APR) on these short-term loans can be extreme.

        “A $15 fee per $100 payday loan might look like a bargain compared to a bank's $25 bounced check charge plus a merchant's fee,” the report said. “However ... a 14-day payday loan with a $15 fee costs 391 percent APR.”

        Stephen J. Schaller, general counsel for CNG Financial Corporation, which represents several check-cashing outlets in the Tristate, said the payday advance practice is “marketed to ... employed customers who use the service responsibly.”

        Mr. Schaller said the average loan nationwide is $230 for a two-week payback. The average customer is age 20 to 40, employed full time and has an income of more than $35,000.

        “These are salt-of-the-Earth people who want a quick unsecured loan because they've gotten in a bind and need money,” he said.

        “Across the country, traditional lending institutions have abandoned the small short-term, closed-end loan. The customer understands when the due date is and that's why some prefer it to a credit card,” he said.

        He added that these practices are “not a substantial factor in consumer bankruptcy.” In Tennessee, for example, which has one of the country's highest rates of bankruptcy filings, 2 percent of the petitions cited check-cashing outlets as creditors, he added.

        Ohio prohibits “rollover” practices by check-cashing operations, which can extend repayment of the short-term loan, Mr. Schaller said.

        But Nicholas J. DiNardo, an attorney with the Legal Aid Society of Cincinnati, said that rollovers are “common practice here.”

        He said he intends to file two lawsuits against local payday lenders.

        “The maximum level of fees needs to be decreased and people need to know that these agencies cannot criminally prosecute them (for defaulting on a loan). Also, lawmakers need to look at criminalizing these rollover loan practices,” Mr. DiNardo said.

        “This industry preys on people who have no other options,” he said. “A large percentage of the people who use these services are not middle class. They are working class people who are just getting by, living from paycheck to paycheck.”


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