CLEVELAND — Local consumer groups warn additional financial stress caused by the COVID-19 pandemic has more consumers taking on higher interest short-term, or payday loans.
Both Policy Matters Ohio and the Cleveland Better Business Bureau urged consumers to do their homework, and make sure they fully understand all loan terms before they sign-up.
Kalitha Williams, Policy Matters Ohio Project Director of asset building, said payday loan reform is needed in Ohio to better protect vulnerable consumers who are taking short-term loans to bridge COVID-19 financial distress.
The group issued a report outlining the need for a more specific 36% interest rate cap, that includes the growing fees it said are being levied on consumers over the past two years.
The report utilized Ohio Department of Commerce data which indicated some short-term lending institutions increased loan origination fees by 180% from 2018 to 2019, in an effort to get around the state's current interest rate cap of 28%, established back in 2008.
The report used data indicating added fees increased interest rates on some short-term loans to well over 100%, leaving some consumers swimming in long-term debt.
“People who turn to these temporary loan products shouldn’t find themselves in an insurmountable amount of debt," Williams said.
“When we have triple-digit interest rates, it helps to keep borrowers in a long-term cycle of debt," Williams said. “Many of these short term loans have fees for check cashing, monthly maintenance fees, origination fees.”
“We’re calling for a 36% interest rate cap inclusive of all fees," she said.
“These fees have very little to no benefits to consumers, their sole purpose is to drive the cost of loans to increase the profits of installment lenders.”
South Euclid resident Anita Woolfolk took out a short-term loan against her SUV in March of 2019, just a month before Ohio put a hold on title loans.
Woolfolk warned consumers to read and understand all loan documents before they accept a short-term loan.
“I was in a bind so I thought that it would be a good thing to do to get some quick money," Woolfolk said.
"I ended up getting about $1,300, and I ended up supposedly getting ready to pay back $4,000.”
“I had to tell my sons I might lose my car, I might lose my truck, and they’re like what did you do mom.”
“What they did was legal, but I would tell anyone don’t do it. You’ll end up being so stressed out.”
WoolFolk turned to the Legal Aid Society of Cleveland, which helped her significantly reduced the amount she owed to the lender.
Sue McConnell, President of the Greater Cleveland Better Business Bureau, said consumers need to check with the Ohio Department of Commerce to see if the lender they're considering is registered with the State of Ohio.
McConnell said if consumers are considering an on-line lender they shouldn't give out personal information or money for up-front fees until they check with the Better Business Bureau to make sure it's a legitimate company.
“It’s very important that you understand what this loan is costing you, what the terms are, how long do you have to pay it back, what is the interest rate," McConnell said.
“They’re not allowed to loan money in Ohio as a payday lender unless they’re physically located in Ohio, and they have to be licensed in Ohio, even if they’re not located in Ohio.
“We’ve talked to consumers who have borrowed money from friends and relatives to pay the upfront fee, to get a loan that turns out to be non-existent.”