The Plain Dealer (Cleveland)
By; Sheryl Harris
April 12, 2013
Language squeezed into the Ohio House budget could create a state database that tracks borrowers' payday loans.
The entity pushing hardest for the database: Veritec Solutions, a Florida company that operates payday loan-tracking databases.
Payday lenders and the consumer advocates who hate them are united in opposing the database.
Lenders have in the past denounced a loan-tracking database as Big Brotherism.
Consumer advocates oppose the database mainly because the cost would be passed along to payday borrowers, who already pay triple-digit interest rates.
"They're making consumers pay for it - and there's no net benefit for consumers," said longtime payday foe Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio.Ohio has never tracked data on payday loans, and when there are battles here about payday and car title loans, opponents rely largely on data other states have collected about borrowers' use of the loans.
Rep. Mike Dovilla, the Berea Republican who inserted the database language into the House budget, said his interest is seeing the state "tracks what payday lenders are doing."
Currently, he said, the state's Department of Commerce "manually rifles through" paperwork if it has questions about a payday lender's compliance.
"There's a very antiquated procedure in place," he said. "I'm interested in updating an existing system and bringing it into the 21st century."
The idea for a database was first introduced in the payday reforms of 2008. But because the idea was unpopular with both payday lenders and consumer advocates, the legislature simultaneously created the database but set conditions for launching it that effectively put it on hold.
The 2008 law forbade lenders from passing database costs on to consumers, a prohibition that the budget language strips from the Ohio Revised Code.
Dovilla said the cost would be only 50 cents per loan, a price quoted by Veritec, but the budget language leaves it to the Department of Commerce to set the fees.
Kevin Schmidt, a Columbus-based lobbyist for Veritec, said the company sought a fee pass-through to tamp down possible opposition from payday lenders.
It apparently didn't work.
"Payday lenders are working furiously to get it back out" of the budget, Schmidt said.
The Short Term Lending Act capped interest rates on quickie loans at 28 percent. Immediately after it was approved at the ballot in 2008, payday lenders began to issue loans under other lending statutes and continued to charge as much or more than they previously had.
The database proposed in the budget would scoop up any loans under $1,500 made for less than 60 days, even those issued under the lending statutes payday stores now use.
"It will provide transparency and some data in a place where it's desperately needed," Schmidt said.
But Faith says the creation of the database misses the larger point that years of independent studies show payday loans trap desperate borrowers in a cycle of debt.
"The product is unredeemable," Faith said. "It's like poison or heroin. It's hard to 'clean up.' It's damaging to people most of the time."
An ongoing survey of payday borrowers by Pew Charitable Trusts found that, although payday loans are marketed as two-week loans, most borrowers spend five months in debt because the high cost and quick due dates make the loans difficult for consumers to pay off while meeting other bills.