Ohio has the unique distinction of having the highest Payday loan rates in the nation - 591%. And the percentage of residents who've used one is almost twice the national average. The Feds just finalized a rule aimed at keeping people out of these debt traps, but some lawmakers are fighting to keep things as is.
"I barely had enough left for groceries."
"It truly saved my butt."
"I just was not going to get a loan anywhere else."
These are testimonials from people who say they took out Payday loans. It’s easy to understand why they have such an allure.
And it's why, when Sean Jackson needed money for unexpected car repairs, he went to a Payday lender to borrow $400.
“I thought it was a quick easy fix. But it was really just placing a band aid over a bullet wound," he said.
Short term loans are marketed as emergency help to get borrowers through to their next paycheck. They're often just a few hundred dollars and have to be paid back within two weeks.
Problem is, according to the Consumer Financial Protection Bureau, four out of five borrowers can't repay that first loan and end up taking out more and more money
Sean described them as a “continuous vicious cycle.”
When he couldn’t afford to pay back the first loan, he ended up taking out additional loans from two other places. So that $400, turned into $1,800 after interest, fees and bank penalties.
And that’s when the harassing calls from bill collectors began.
"About ten times a day every day. From there they started calling my mother,” he said.
That's why the CFPB drafted new rules governing these lenders which include requiring them to :
-Get documentation proving the borrower can repay the loan.
-Refuse loans to anyone who's taken out three within thirty days of each other.
-Give written notice before debiting money from a borrower’s bank account.
But some lawmakers are accused of getting a payday of their own, by trying to shut down these protections.
Representative Jeb Hensarling, who received 95 contributions totaling $183,950 from the Payday industry since 2010, Sponsored the Financial Choice Act which would keep the CFPB from regulating these lenders.
One of the co-sponsors of the bill is Representative Steve Stivers of Ohio, who received 58 contributions from the Industry totaling $116,500."why does he support something that could potentially hurt consumers."
"Why does he support something that could potentially hurt consumers?" I asked staff members for the Representatives.
Both responded by email saying it’s the CFPB rule that will hurt consumers, especially those with lower incomes, restricting their access to emergency loans. And that the contributions are not a conflict of interest.
“There are a number of members of congress that think that it's perfectly fine to put people into a situation where they potentially risk losing their car or being garnished by wages, said consumer attorney and former Ohio Attorney General Mark Dann.
Dann has testified in front of the Ohio legislature regarding the problems with Payday loans. He’s filed numerous lawsuits against lenders for harassing borrowers, including Sean, and won.
“We got rid of debtor’s prisons with the Constitution,” he says.
With his settlement, Sean went to school to become a paralegal…and realtor. But he still wishes he could have avoided this altogether.
"I would have told my family and my immediate support circle, support system, that I was having car problems. I could have easily gotten a ride to work for two weeks,” he said.
As I always encourage, if you feel strongly about this issue you need to contact your Representatives and voice your concerns. Below are both the CFPB rule and the Financial Choice Act, as well as the Representatives full responses to our story.
I also put a link on my Facebook page on what to do if you have a payday loan you can't repay.
Response from Representative Hensarling’s Office:
First is Chairman Hensarling’s comment on the CFPB’s rule against short-term small dollar loans. This rule will hurt consumers, especially those with lower and moderate incomes.
Second is one of many statements Chairman Hensarling has made about the Financial CHOICE Act, which passed the House in June. In short, the Financial CHOICE Act will end taxpayer bailouts of big banks, toughen penalties for those who commit financial fraud or insider trading, and provide regulatory relief for financial institutions. The Congressional Budget Office issued a report noting that the majority of the Financial CHOICE Act’s regulatory relief is targeted to community banks and credit unions and that few big banks will benefit from the bill.
Lastly, it’s ludicrous for anyone to suggest the Chairman’s support for consumer choice and freedom – especially for those with lower and moderate incomes – is tied to anything other than his principles.
Chairman Hensarling’s Statement on CFPB’s Short-Term Small Dollar Loan Rule;
“Director Cordray and the CFPB will further harm consumers and punish some of America’s most vulnerable by taking away their right to access small-dollar emergency loans. They seemingly have no idea what life is like for millions of struggling Americans who might need a small-dollar emergency loan to keep their utilities from being cut off or to keep their car on the road so they can get to work. Yet once again we see powerful Washington elites using the guise of ‘consumer protection’ to actually harm consumers and make life more difficult for lower and moderate income Americans.
“Accountable to no one, Director Cordray is running rough-shod not only over consumers but also the democratically-elected governments of all 50 states and tribal authorities. No unelected individual should possess such sweeping powers. States already regulate small dollar loans and possess full authority to address any abuses. When I asked Director Cordray to identify states he believes do not adequately protect consumers of small dollar lending, he declined to do so.
“Let’s be clear about what is happening: Director Cordray, a man first appointed unconstitutionally to head an agency that is unconstitutionally structured, is making law without the consent of the governed. This is administrative absolutism and it must be rejected.”
Additional resources on small dollar loan issue:
Statement on Passage of the Financial CHOICE Act
WASHINGTON – The House on Thursday passed the Financial CHOICE Act, legislation to overhaul and replace the failed Dodd-Frank Act that has contributed to the worst economic recovery of the last 70 years.
“Every promise of Dodd-Frank has been broken,” said Financial Services Committee Chairman Jeb Hensarling (R-TX), as he read letters from Americans about how they have been declined home, automobile and small business loans due to Dodd-Frank’s burdensome regulations. “Fortunately there is a better, smarter way. It’s called the Financial CHOICE Act. It stands for economic growth for all, but bank bailouts for none. We will end bank bailouts once and for all. We will replace bailouts with bankruptcy. We will replace economic stagnation with a growing, healthy economy,” he said.
“We will make sure there is needed regulatory relief for our small banks and credit unions, because it’s our small banks and credit unions that lend to our small businesses that are the jobs engine of our economy and make sure American dream is not a pipe dream,” said Chairman Hensarling.
CHOICE, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, has received strong support from community banks and credit unions. Large financial institutions did not offer their support for the Financial CHOICE Act. Instead, Wall Street CEOs have publicly said they do not support repealing Dodd-Frank.
The Congressional Budget Office reports the Financial CHOICE Act would reduce the deficit by $33.6 billion over 10 years and that the bill’s regulatory relief would benefit community banks and credit unions. The nation’s largest banks would be unlikely to raise enough capital to meet the bill’s requirement for substantial regulatory relief, the CBO reported.
FINANCIAL CHOICE ACT AT A GLANCE:
BANKRUPTCY, NOT BAILOUTS
No more bailouts: that’s at the core of the Financial CHOICE Act. With changes to the bankruptcy code, large financial firms can fail without disrupting the entire economy or forcing hardworking taxpayers to pay for more bailouts.
ACCOUNTABILITY FOR WALL STREET AND WASHINGTON
The Financial CHOICE Act includes the toughest penalties in history for those who commit financial fraud and insider trading. Holding Wall Street accountable with the toughest penalties in history will deter corporate wrongdoing and better protect consumers. At the same time the Financial CHOICE Act holds Wall Street accountable, it also holds Washington accountable. Tougher accountability for Wall Street and Washington will protect the integrity of our markets so they benefit ordinary Americans who are working, saving and investing.
STRONGLY CAPITALIZED BANKS
Dodd-Frank’s one-size-fits-all regulations treat all financial institutions the same, regardless of their size. That makes no sense and hurts smaller, hometown banks and credit unions that did nothing to cause the last financial crisis.
The Financial CHOICE Act is based on two important principles: First, all banks need to be well-capitalized and, second, community banks and credit unions deserve relief from the crushing burden of over-regulation. Under the Financial CHOICE Act, banks and credit unions will qualify for regulatory relief if they elect to maintain enough capital to ensure that if they get in trouble, taxpayers won’t be forced to bail them out. Ninety-eight percent of the financial institutions that met the Financial CHOICE Act’s requirements for being well-capitalized did not fail during the financial crisis. Of the miniscule percentage that did fail, none posed a systemic risk.
The Financial CHOICE Act grows our economy from Main Street up. Dodd-Frank tries to control the economy from Washington down. The Financial CHOICE Act will help get credit and capital into the hands of working men and women to fuel their economic growth.
Response from Representative Stiver’s Office
“I voted for the CHOICE Act because the regulations stemming from Dodd-Frank have caused great harm to consumers while doing little to protect us from future crisis. Addressing these issues was essential to ensuring consumers have access to the needed credit for personal finance and economic growth. In fact, many of the individual solutions contained in the bill have bipartisan support.
“Ohio's community banks and credit unions - who had zero responsibility for the 2008 crash – have been disproportionately burdened by Dodd-Frank, affecting their ability to serve employers and families in the community. Moreover, the Federal Reserve recently found that 46 percent of Americans can't access $400 for an emergency. The Soviet-styled CFPB is trying to take away options available to millions of Americans who need it. These options will be restored under the CHOICE Act.
“When I receive support, it is because people know of my positions on issues. There is no conflict of interest in helping consumers by supporting economic growth, more opportunity and more choice.”