Payday-loan sharking protection needed


First Posted: 1/10/2015

In 2008, almost 64 percent of the Ohioans who voted approved upholding a payday-loan-reform law that capped annual percentage rates on such loans at 28 percent. The law, Substitute House Bill 545, was intended to bar APRs that had been as high as 391 percent.

Payday lenders evaded that cap by registering under other Ohio loan laws. And Ohio’s Supreme Court, in a 7-0 ruling last June, refused to close that loophole, as has the legislature — so far.

The federal Consumer Financial Protection Bureau, led by former Ohio Attorney General Richard Cordray, is considering whether, and how, to assure fairness to payday-loan borrowers. …

(I)t appears that states can regulate APRs on payday loans, at least on loans issued by nonbank lenders, while Cordray’s CFPB can’t. But there are other critical areas Cordray and the bureau can and should pursue. …

One critical need is for the bureau to ban loans requiring periodic payments larger than 5 percent of a borrower’s pre-tax income. Another must: rules that spread the cost of a payday loan evenly over its life. Now, because lenders’ profits are typically front-loaded, they have an incentive to induce borrowers to refinance before a loan’s term ends, a fee-maximizing practice known as flipping.

Beleaguered borrowers need the protections that Cordray’s agency can provide. It must do so — strongly, and soon.

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