What began with a small loan — $100 just to get him through the month — came back to bite Howard Yost.
“Then sometimes, in order to pay one expense or other, I had to borrow more. Gradually, it began to build up,” the 69-year-old Marietta resident said. “The more I borrowed, the more in debt I got.”
The payday loan alternative, with its lure of quick cash, snagged Yost.
“I didn’t realize what was happening until it was too late,” he said.
Payday lending fees are typically around $15 per $100. Short-term loans are made for two weeks only.
Soon, Yost said, he owed his lender $801 and had no way to pay it back. It would have taken most all his Social Security check and left him nothing to pay utility bills, rent, or food.
“I felt trapped and frustrated,” Yost said. “It’s a lot like an addiction.”
The number of payday lending locations in Ohio has jumped from just more than 100 a decade ago to more than 1,500 today, according to a February report from Policy Matters Ohio, a nonprofit, nonpartisan research institute.
The Coalition on Homelessness and Housing in Ohio, an affiliate of Policy Matters, hopes to put the skids on payday loan rates, taking on the giant lending industry in the Buckeye State.
“We are advocating that this is a flawed product,” said Cathy Johnston, advocacy director with the coalition.
Johnston was in Marietta earlier this week to talk with Yost and others about payday lending and present the coalition’s case.
The goal is not to put the loaning institutions, which are legal, out of business, but to limit the interest rates they charge. It’s hoped that goal can be reached through the Ohio Legislature.
“I am very supportive of any legislation” regarding payday lending, said Sen. Joy Padgett, R-Coshocton. “They need to be reigned in. It’s a system. You get the second loan to pay the first, and the second is higher interest.”
When Padgett proposed legislation last year on predatory lending, she wanted to add on payday lending, but held back.
“It’s scary,” she said. The coalition wants “to stop the (interest) rate at 36 percent. Imagine, 36 percent interest.”
Washington County, with 21 payday lending storefronts, is considered to have the highest concentration in the state with 3.32 lenders for every 10,000 people. Belmont and Gallia counties ranked second and third.
Coalition representatives met Wednesday with Rep. William Batchelder, R-Medina, to plead their case and seek support. In an interview Friday, Batchelder expressed serious concern, calling the issue “troublesome.”
“What we don’t have yet is a lot of detailed information and whether the people do perceive this as a problem,” he said.
So far, there have been no formal hearings by lawmakers. It is hoped a bill is ready for introduction after Labor Day, Johnston said.
Payday short-term loans (typically two weeks) are most often made to borrowers who cannot afford to pay them back without taking out another loan, forcing borrowers to flip the loan repeatedly and pay additional fees, she said.
A trade industry spokeswoman disagrees.
“People have been taking advances on their paychecks forever,” said Lyndsey Medsker, spokeswoman with Community Financial Services of America. “There is a need and continues to be a need for it.”
Medsker said for payday lenders, the time has come. There are few complaints, she said.
“Overall, people use them as intended, to get them to the next paycheck,” she said.
At last count, there were 25,000 payday lenders across the country in 2006, up from 22,000 in 2005. In July, the trade association agreed that anyone who could not pay in two weeks should be extended eight weeks without an additional charge.
“Banks quit making $200 loans in the early ‘90s,” Medsker said. “In order to take out a loan, you must have a checking account, so these people have a relationship with a bank.”
Those who want to see greater regulation in the industry call for change.
“When you have one payday lender, it takes hold and other payday lenders cluster,” Johnston said. “It’s grown incredibly in Ohio since 1996.”
It began in urban areas of Cleveland, Cincinnati, and Columbus, growing rapidly from 107 locations in 1996 to 1,562 locations throughout the state today.
Urban counties still have the largest number of payday lending stores, but of the 10 counties with the highest concentrations per capita, not one is urban, according to the report.
Lynda Frost, 41, of Columbus is an urbanite who has been a satisfied payday borrower for years. She is happy with the product and service and willing to say so.
“I follow the rules,” Frost said. “As long as you follow the guidelines, you are fine. The person borrowing needs to be responsible.”
The proposed 36 percent limit is the same protection recently enacted on the federal level for military families, Johnston said.
“This would ensure responsible and transparent costs for loans, preserve legal protections and protect assets of Ohio borrowers,” she said.
Suzanne Gravette, spokeswoman for the coalition, encourages others who have stories to tell about payday lending to contact the hotline (1-866-9NOTRAP) and share information.
“Stories put a face on the industry,” Gravette said. “People should not feel embarrassed. They went to what they thought was a responsible lender and were hurt.”
Yost said that at one time he was being threatened with eviction because he couldn’t pay the rent. His health deteriorated.
“It got to be a lot of stress and I was getting pretty depressed,” he said. “There were times I didn’t have money for food.”
Yost is now working with Washington/Morgan Community Action, now his payee, and is getting through the debt.
“You get in there and you get trapped,” he said. “I will never, never go back there again. I learned my lesson.”
Perils of payday loans
Interest rates and fees are often outrageous. Fees in Ohio are usually at a 391 percent annual percentage rate for up to $500 borrowed, translating into $45 every two weeks for a $300 loan.
The business model is designed to keep borrowers trapped in multiple loans over long periods.
Customers pay high fees to borrow their own money.
Payday lending knows no geographic boundary or racial preference.
West Virginia, Pennsylvania and 11 other states (representing a quarter of the US population) ban payday loans.
There are viable alternatives. Banks and credit unions offer short-term small loans, which are more affordable and less abusive.
Source: Ohio Coalition for Responsible Lending
For more information
Payday lending Hot Line: 1-866-9NOTRAP (966-8727).
Facts about payday lending in Ohio
The number of stores licensed went from 107 locations in 1996 to 1,562 in 2006.
Ohio has more payday lending locations than McDonald’s, Burger King and Wendy’s combined.
In 1996, lenders were concentrated in urban areas. By 2006, every Ohio county, except Ottawa and Vinton, had at least one payday lender. Thirty-five counties had more than 10 locations, nine counties had 40 or more.
Washington County is the county with the greatest number of payday lenders per capita — 21 stores, or 3.32 stores per 10,000 residents.
Most payday lenders in Ohio are chains or franchises. The two most common are Advance America and Cashland Financial Services, each with more than 100 stores.
Center for Responsible Lending shows that 1 percent of payday loans go to borrowers who repay within two weeks and borrow less than once a year, while 99 percent go to repeat borrowers.
The average payday borrower takes out nine loans per year.
Nationwide, the CRL estimated in 2005 that 7.6 million workers receive 83 million payday loans per year. Two-thirds, or 5 million borrowers, become trapped in a cycle of debt at an annual cost of $3.4 billion.
