Report: Swapping Payday Loans for Auto-Title Loans in Ohio

Beginning in 1996, Ohio saw an explosion of payday lenders. Over time, this was recognized as a problem, as the short terms and high interest rates of payday loans were seen to create a trap for borrowers. So the state legislature passed a law imposing new lending regulations that would better protect borrowers. That law, the Short Term Loan Act, was endorsed by voters in a statewide referendum.

I’m just a bill, sitting on Capitol Hill, problem solved, right? Well, no.

According to a new report from Policy Matters Ohio (authored by our colleague, David Rothstein) the payday lending industry has simply rebranded itself as “Credit Service Organizations” or “Auto-Title Lenders” and is either carrying on as if the law was never changed, or is offering a potentially more debilitating product in the form of auto-title loans.

“Lenders have circumvented Ohio legislation designed to limit payday lending, and have begun operating under laws intended for other purposes,” said Rothstein, in a press release. “These loans put struggling families at risk of losing the vehicles they depend on for their livelihood.”

The report has generated media coverage in Cleveland, Dayton and Columbus so far. What can be done about it? Policy Matters suggests that the State AG and Department of Commerce have the authority to crack down on this behavior, (i.e. they could enforce the law) and that the state legislature could specifically take the step of banning auto-title lending, or further regulating it.

There are some real issues at play here, but one of the big things about this is that it broadly illustrates the problem of legislative prohibitions on specific pratices. Whether you call this “Whac-a-mole” or “squeezing the balloon” the problem is the same, that’s why we’ve often argued for a principles-based system of regulation that would allow action to curb all such abusive practices in a swift manner. The State AG and Department of Commerce should enforce the law. Maybe they will, maybe they won’t, but what’s different for everyone involved now is that the CFPB is out there and listening, do they have the will and capacity to backstop state regulators? We might be about to find out.