The Payday Loan Trap

The day after an overflow crowd packed a meeting room at Antioch Baptist Church on Cleveland’s eastside to attend a hearing on payday loans called by Attorney General Marc Dann, a disturbing report came out. Issued by a Washington, DC-based mortgage brokers association, the report stated that 1-in-9 Ohio homeowners are behind in their mortgage payments. No wonder many people are borrowing money at an annual rate of 391 percent (far above usury) just to stay afloat. A typical $800 payday loan balloons to a repayment of $912 in just two weeks, far outstripping what the Mafia charges.

David Rothstein, a researcher for Policy Matters Ohio, stated that “payday lending locations in Ohio had increased dramatically from 107 in 1996 to 1,562 in 2006. In those 11 years, there was a 1400% increase in lending locations across Ohio. They now have locations in 87 of Ohio’s 88 counties.” Payday lenders are now so common throughout the state they outnumber McDonalds, Burger King, and Wendy’s restaurants combined. Somebody is making a lot of money off of poverty and misery. Like the saying goes, “It costs more to be poor.”

The Center for Responsible Lending (CRL) “estimates that the vast majority of borrowers are repeat borrowers, taking out loans between seven and 14 times a year. States with reporting capabilities such as Michigan, Colorado, and Washington find that the majority of revenue comes from the repeat borrowers who take out more than 6 loans a year. Thus, the incentive for payday lenders is to keep customers borrowing.” In other words, payday loans are designed to become a financial trap that people can’t pay their way out of.

It’s long been rumored that many of the payday lending operations are owned by subsidiaries of banks. If that’s the case then it’s easy to understand why those same banks refuse to open branches in inner-city and rural communities. They make more money gouging folks with the higher interest rates from storefront loan shops. And legislators in Ohio knowingly go right along with the filthy scheme, and in one case even gave loans and grants to one of the shylock operations to help them expand.

According to Rothstein, Ohio is flooded with so many payday lenders simply because of weak regulations in the state. Neighboring states, such as Pennsylvania, West Virginia and even New York have outright banned payday lenders, and other states have forced them to cap their rates.

Payday lenders proliferate around military bases, preying on the families of service members. The federal government passed the Talent-Nelson Amendment, which caps fees at 36 percent to protect these families, and Policy Matters has recommended that those same protections be extended to all working families.

In reality there is a need for these types of loans, otherwise the operations would go out of business. Indeed, it may be cheaper in some cases to pay the interest on a payday loan than to pay the penalty fees charged by other lenders. However, that doesn’t mean people should be taken advantage of. The operators of the high rate operations maintain they have to charge the exorbitant rates just to stay in business and make a fair return on their money, but that’s simply not true.

Rita Haynes, the director of Faith Community United Credit Union on 93rd and Union Ave. has been in the trenches, working for economic parity and empowerment for minorities for decades. The credit union she heads currently makes loans at a rate below the 36 percent mark, but expanding her services would prove difficult unless state legislators move to change the laws. “The lobbyists for the payday lenders are very powerful and there is a lot of money at stake for them” said Haynes. “They’ve even convinced legislators from minority communities that the services they offer are necessary, and I don’t disagree with that — it’s just that their rates are so unfair.”

However, as reasonable as the alternative sounds, as long as the lobbyists for the payday lending industry continues to find legal ways to line the pockets of Republican legislators in Columbus (and a few Democrats too) don’t expect much to change. It pays to keep in mind that Ohio is really a southern state that just happens to be physically located north of the Mason-Dixon Line.

This, however, is an industry that is soon going to be knocked out of the box by it own success. Here’s why: Remember the part about payday loan shops now being located in 87 counties? Who do you think supports these greedy bastards in the 75 or so mostly rural counties around the state? White folks, that’s who.

As long as the scumbags were just ripping off inner-city Black folks with their usury rates no one really gave a hoot; but now they’re ripping off White people, and just watch, the laws are going to be changed in New York minute.

From Cool Cleveland contributor Mansfield B. Frazier mansfieldfATgmail.com
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