Senate continues payday lending hearings

STEUBENVILLE — The Ohio Senate Finance Committee will hold a hearing today on short-term lending, commonly called payday loans, taking up the issue following action by the House to pass a 28 percent interest rate cap on April 30.

It’s the Senate committee’s third hearing on the issue, with a fourth hearing on the schedule for Wednesday afternoon but no testimony scheduled.

The House bill included not only the interest cap but also a limit of four payday loans per year per customer.

Phyllis Riccadonna, who has operated America Check Exchange locally since 1997, said there are other solutions that weren’t included.

“I’ve been in this business since 1997. I opened the first payday loan shop in the entire Ohio Valley,” Riccadonna said. “The 28 percent cap would put us out of business. There is no ifs, ands or buts about it. It amounts to a charge of about a dollar per loan.”

State Treasurer Richard Cordray said in a recent interview that the current loan rates charged by the payday lenders in Ohio amount to about 391 percent annually, but Riccadonna said a better solution would be a return to tighter caps on loan amounts, not interest.

She said payday lenders are a licensed, regulated business in Ohio. When the business initially began, loans were capped at $300.

“That was fine. The payday loan industry was still making money,” Riccadonna said. “About five years later, they decided to increase the maximum to $500. That was OK=”

The cap later was increased to $800 per loan and the problems began, she said.

“Our company never increased our loan. We decided that with our customer base, we would be doing them no favors increasing the amount. I always said it should stay at $500, and I could see what was happening from then on,” she said.

Riccadonna said the problems arose when lenders began loaning more than the customers earn.

“I won’t give you $500 if you make $400 every two weeks,” she said. “For example, if you earn $500 every two weeks, you might get $200 a month. I won’t lend someone their whole paycheck.

“That is where all of this comes. The House voted to put us out of business,” Riccadonna said. “They wouldn’t even listen to alternatives or tweak the business at all. They just said 28 percent.”

Riccadonna said she’s been busy talking with senators and their staffs, reminding them there are 7,000 people working in the payday loan industry in Ohio and 1,600 storefronts that would be vacant if the industry closed.

“If you’re going to put people out of work in Ohio, you better have some alternative jobs there.”

The legislation passed by the House does include some items the payday lending industry agrees with, such as establishing a database to allow different lenders to check on a customer’s status with outstanding loans at other companies. Riccadonna said customers get themselves into trouble by cross shopping, obtaining multiple loans from multiple lenders.

A report by the Fordham University School of Law contained on the Ohio Association of Financial Service Centers Web site details how borrowers get into trouble.

In a typical payday lending transaction, the borrower writes a check for a set amount and gives the check to the payday lender, receiving less cash than the amount of the check. The check is the only kind of security on the loan. The check is held until the borrower’s next payday. If the borrower has the money, there is no problem.

But if not, the borrower may either extend the loan for another pay period, with additional fees charged, or go to another lender for another loan, or the lender can cash the check and leave the borrower facing a bounced check fee.

Riccadonna noted the payday lending shops are not legally allowed to pursue criminal prosecution against borrowers.

Riccadonna and the Fordham report, both noted that banks stopped making short-term loans to help people facing sudden emergency costs, such as car repairs or medical bills. That led to the rise of the payday loan industry.

The Fordham study notes that trouble arises when borrowers use payday loans as a long-term liquidity support system, constantly rolling over loans and borrowing more from more shops.

“If we have guidelines that must be followed, I’m all for it,” Riccadonna said. “That only makes the business better.”

Riccadonna said she hopes the Ohio Senate will listen to the concerns of the industry, not only because of jobs at stake but because of the need that payday lenders fill in the financial community.

“There is not a customer who can go into a bank and get a loan without a credit check,” she said. “We give loans without credit checks. We verify that you have a job. You have to provide your last 30 days’ bank statement and we watch for bouncing checks or a negative balance that is way out of control. Am I going to give someone a loan in that situation? I won’t get repaid and the person already is in trouble.”

Riccadonna said she provides credit counseling, which she believes should be a requirement of Ohio law.

The Ohio House had held hearings for months and had not touched interest rates until the bill that was passed at the end of April.

The industry said without alternatives, borrowers who would use payday lending will resort to getting short-term loans on the Internet, which are not subject to state regulation.

“We charge about $15 per $100 borrowed. Internet lenders charge between $25 and $50 per $100,” Riccadonna said.

“The whole basis of our business is working-class people,” she said. “These are good people, proud and responsible people, or we wouldn’t be in business.”



(Giannamore may be contacted at pgiannamore@heraldstaronline.com.)