How did payday lenders get into Ohio? And why won't they leave, even though Ohio voters asked nicely?
A complete history of payday lending in Ohio would fill a book. Instead, this illustrated history will give you the highlights of how an industry whose product is designed to push customers into repeat, high-cost borrowing has managed to dig in and thrive, despite numerous attempts by state or federal governments to rein it in.
Late 1980s to mid-1990s
Check cashers begin offering consumers loans against their next paychecks, secured by the borrower's postdated check. At $15 per $100, an annual interest rate of 391 percent, the loans are lucrative -- and in most states, prohibited.
Ohio's General Assembly grants payday lenders an exemption from the state's usury rate, which caps annual interest on loans at 8 percent. With this prohibition against high-cost lending swept away, payday lending stores open for business in Ohio.
Consumer advocates accuse payday lenders of adding to the woes of borrowers who fall behind on payments by repeatedly depositing their postdated payment checks, resulting in multiple insufficient-funds fees.
Banks, including Wells Fargo, begin to offer customers expensive payday-style "deposit advance" loans against their next paychecks.
The Consumer Federation of America warns that payday stores like Dollar Financial are partnering with out-of-state banks so they can charge higher interest than Ohio and other states allow.
Ohio's House and Senate consider bills to allow "auto-title loans," payday-style loans secured by a borrower's car, rather than a postdated check. The bills die when consumer groups rally in opposition.
Ohio bars payday lenders from using the state's Civil Damages for Crime Victims law to sue borrowers for triple damages if their postdated checks bounce.
The Federal Reserve says payday loans fall under the federal Truth in Lending Act, meaning lenders must disclose the cost of the loans in terms of their annual percentage rate, or APR -- something they have vigorously fought. The APR allows consumers to compare the costs of credit, regardless of how it's packaged.
Concerned by reports that payday borrowers take out as many as eight to 11 loans a year, some states begin to crack down.
Texas-based Ace Cash Express claims its partnership with a California bank allows it to charge a 442 percent APR to Ohio borrowers. When the Ohio attorney general's office orders Ace to renew its state lending license or cease business here, the company sues the state in federal court.
The Office of the Comptroller of the Currency orders a Pennsylvania-based national bank to cut ties with payday lender Dollar Financial, saying the risky loans threaten the bank's safety and soundness. The OCC deals with the rent-a-charter ploy bank by bank, but worried payday lenders scramble to create partnerships with banks supervised by other federal banking regulators.
Lawsuits by borrowers and states over interest charged through rent-a-charter agreements result in a wave of settlements by payday lenders. Ohio-based Check 'N Go agrees to forgive $5.9 million in debts it tried to collect from Indiana residents. Check Into Cash coughs up $5.5 million.
Ace Cash Express settles its suit against Ohio, agreeing to take out a state lending license and to give $250,000 to overcharged customers. To get the refund, customers must take out another Ace loan.
Federal banking regulators crack down on bank rent-a-charter agreements with payday lenders. The Office of Thrift Supervision orders Ohio-based First Place Bank of Warren to sever ties with Ohio-based Check 'N Go's Texas stores. The OCC sends a similar rent-a-charter order to a South Dakota bank. And the FDIC issues draft guidelines that make bank-payday partnerships more difficult to pull off.
The OCC issues a final rule pre-empting, or prohibiting, states from imposing restrictions on OCC-chartered banks.
The CFA releases a report showing payday lenders have changed course again, using Internet loans to dodge state usury caps. The CFA finds some lenders are charging annual interest rates as high as 780 percent.
Thirty-five states now have laws favorable to payday lenders. Georgia and North Carolina join the ranks of states banning the loans. In Ohio, Gov. Bob Taft signs a bill raising the amount payday stores can lend from $500 to $800.
The Department of Defense warns Congress that payday-loan debts distract service members and pose a threat to military readiness. The department says it has
The Center for Responsible Lending reports that consumers lose $4.2 billion a year to payday loan fees. The group contends the payday industry's profits are driven almost entirely by consumers who repeatedly borrow because they can't pay off the high-cost loans when they come due.
Policy Matters Ohio reports that, since 1996, the number of payday stores in Ohio has jumped to 1,562, leaving Ohio with more payday stores than McDonald's, Burger King and Wendy's restaurants combined.
The mortgage meltdown ignites a full-blown economic crisis. As the nation rethinks its love affair with credit, consumer groups in Ohio and other states push the legislature to reel in payday lending.
Ohio legislators in the Senate announce a bipartisan plan to cap payday loans at 36 percent APR, prompting one lobbyist to complain, "You couldn't keep the doors to your business open."
Payday lending reform stalls in the Ohio House, where Minority Leader Joyce
Ohio approves payday reform, creating a "Short-Term Lending Act" that caps annual interest on short-term loans at 28 percent and gives borrowers a month to repay. Payday lenders immediately launch a $16 million campaign to repeal the interest cap on the November ballot.
Ohio voters overwhelmingly approve a 28 percent APR cap on short-term loans.
The Plain Dealer reveals payday lenders have ignored the Short-Term Lending Act en masse. Lenders claim that by taking out lending licenses as state mortgage or credit services organizations, they can add fees and shorten due dates for loans. As a result, some charge up to 700 percent APR.
The Obama administration sends Congress a proposal for a Consumer Financial Protection Bureau to police the marketplace for unfair consumer credit products. The bureau would oversee banks and previously unregulated lenders like payday stores. Payday lenders write checks to Congress. Citizens for Responsibility and Ethics in Washington later reports that payday lenders gave $1.5 million to lawmakers in 2009 and 2010. Congress votes to create the bureau but prohibits it from capping payday interest rates.
President Barack Obama signs the financial reform bill creating the Consumer Financial Protection Bureau. Although the CFPB can't cap payday interest rates, the Dodd-Frank Act allows the bureau to regulate the loans in other ways -- for example, by requiring lenders to give consumers more time to repay. To oversee payday lenders, the bureau must have a director at the helm.
An Elyria Municipal Court magistrate rules against Cashland in the first court test of Ohio payday lenders' attempt to dodge the state's 28 percent interest rate cap. A state appeals court later upholds the magistrate's decision to slash the interest the Cash America subsidiary can collect to 8 percent. The case is now pending before the Ohio Supreme Court.
Forty-four of the Senate's 46 Republicans vow to block the confirmation of anyone to lead the consumer protection bureau unless the Obama administration agrees to changes that will weaken the agency.
As the CFPB prepares to open for business, Obama nominates former Ohio Attorney General Richard Cordray to lead the bureau. Later, when the nomination stalls, Obama declares Cordray a recess appointee, even though Senate Republicans have maneuvered to avoid a recess.
The U.S. House Financial Services Committee begins hearings on a payday industry-backed bill that would transfer supervision of payday lenders from the CFPB to the Office of the Comptroller of the Currency. The OCC objects to the plan.
Consumers sue Ohio-based Fifth Third Bank in federal court in Cleveland, claiming bank customers were misled about the costs of payday-style "Early Access" loans. Two other suits follow within the next few months.
Policy Matters Ohio reports that payday lenders like Ace Cash Express are using mortgage lending licenses to issue auto title loans, payday-style loans made against a borrower's car, at 350 percent annual interest rates. The group says lender Loan Max is exploiting the state's credit services organization law to broker similarly expensive auto title loans.
A federal appeals court rules recess appointments to the National Labor Board invalid, raising new questions about Cordray's appointment to the CFPB. Obama renominates Cordray to the job; Senate Republicans again vow to block a confirmation vote.
Cordray identifies payday loans as one of four primary areas of focus for the CFPB.
The Federal Trade Commission takes court action against two payday lenders
The Center for Responsible Lending reports that 1 in 4 payday borrowers relies on Social Security income.
The CFPB examines data kept by payday stores and banks that issue payday-style loans and brands both products "harmful." The bureau cites evidence of repeat borrowing by payday customers (almost half took out 10 loans in a year's time) and concludes the loans "can trap borrowers in debt."
The FDIC and OCC issue joint guidelines that sharply restrict banks' ability to
A handful of U.S. Senate Democrats introduce the Protecting Consumers from Unreasonable Credit Rates Act (S. 673), which would cap the APR on consumer credit, including payday loans, at 36 percent.