Friday, October 19th, 2007
Many area residents trapped in cycle by payday lenders
Report states the payday lending industry actively encourages repeat borrowing
By William Kincaid
More than 2,000 residents in Auglaize and Mercer counties are trapped in payday lending debt cycles, according to reports from the Ohio Coalition for Responsible Lending.
The recently released report shows that in 2006, 1,230 payday borrowers in Auglaize County paid a total of $1.23 million in loan fees, and 820 payday borrowers in Mercer County paid $820,565 in loan fees.
Payday lenders typically loan money out for a two-week period, and if not paid back in that time, fees are charged. The report said fees can run as high as 391 percent.
In 1996 both Mercer and Auglaize counties had no payday lending storefronts. By 2006, there were six storefronts in Auglaize County and four storefronts in Mercer County. The Mercer County stores are all in Celina - three Cash Advances and a Cashland.
"We certainly get a number (of cases) in small claims each month where they (the borrowers) haven't paid," Celina Municipal Court Judge James Scheer said Thursday afternoon. "I would say the numbers haven't decreased."
He also pointed out that the interest rates of such loans are extraordinary, as he has seen high rates of 350 to 490 percent interest.
According to the coalition's documents, the data was gathered from 10-K filings of Ohio's four largest, publicly-owned payday corporations, which must file annual reports with the Security and Exchange Commission (SEC). Because Ohio does not collect and publish payday loan data from privately-owned operations, the coalition also used data from five other states that do collect and publish such information.
"We feel comfortable using these states as proxies for Ohio because their repeat rates are consistent among themselves, and available states' single lender repeat rates are consistent with or slightly higher than our finding for Ohio," the coalition wrote in a release.
The coalition states that the payday lending business model is dependent upon trapping the occasional customer into a repeat borrowing cycle.
"High interest and fees (391 percent APR) and short repayment terms combine to snare borrowers in costly back-to-back loan transactions," a press release from the coalition says. "Statewide the average borrower takes out 12.6 loans per year. The average loan amount is $328. By the 13th loan, the customer has paid $637 in fees to borrow the same $328 over and over again."
According to the report, Ohio payday borrowers pay more than $318 million in payday loan fees annually.
"The payday lending industry actively encourages repeat borrowing and is dependent upon its ability to lure most of its customers into this devastating debt trap," the report states.