Payday lending is cast in two lights. Detractors said it is a way to trap people struggling financially into a cycle of debt and supporters claim it is a legitimate business offering temporary help when needed.
Whichever is true, business is booming. Ohioans pay over $318 million in payday loan fees annually and the average borrower in the state takes out 12.6 loans per year, according to the Ohio Coalition for Responsible Lending.
Huron County is no exception, with no payday lending stores in 1996 and 10 listed in 2006. Six stores are currently operating in Norwalk. Residents in Huron County paid more than $2 million in fees in 2006 and the OCRL identified 2,050 county residents as "trapped borrowers," which means they took out five or more loans in 2006. The average loan in Ohio is $328.
Three bills now in the Ohio House of Representatives would either make the industry responsible or cripple it into extinction, depending on which side of the argument is talking.
The Reflector has compiled data from both sides and also attempted to anonymously visit each of Norwalk's six payday lenders to get a first-hand experience of the process.
No payday lenders allow local employees to speak to reporters, so the paper contacted the national company for each local storefront after visiting the local branches and also spoke to a representative from the Ohio Coalition for Responsible Lending.
Some facts can't be disputed the annual percentage rate of loans in Ohio tops out at 391 percent, but state law does not allow loans to be rolled over and those rates can't actually be charged. So what do paycheck lenders do?
National industry spokespeople said each store charges basic up-front fees based on the highest allowed interest rates and tries to switch loans to extended payment plans if customers can't repay immediately. The businesses say they offer this option, often without any extra fees, because they want satisfied customers to come back.
The OCRL said payday lenders try to trap customers into a continuing cycle of applying for loans to pay off loans.
Payday lending provides a service
Jabo Covert, spokesman for Check Into Cash, said Ohio has one of the lowest limits in the country for interest rates and his company abides by that law. He said loan periods vary from seven to 31 days, but the company charges the standard of $15 per $100 for each loan. He said the annual percentage rates of 391 percent the stores are legally required to display are misleading because they can not roll over loans in Ohio and actually charge those rates.
"We're going to work with them if they need to come in a day late because of a personal problem," Covert said. "Most of our customers pay us back on the day it is due." He said the company will extend payments out for up to another two months for customers with no extra charge.
Covert said the company can charge a non-sufficient funds charge of $20 if the post-dated check customers leave when they take out the loan does not clear, but said the company usually doesn't do that if customers make an effort to work out a payment plan. Customers' banks can also levy a fine if the check doesn't clear.
"Our desire is not to see the customer accumulate any additional fees," Covert said. "That's not successful for us."
He said more than 90 percent of Check Into Cash customers pay back their loans either on time or "within a couple of days" and that is what makes a successful business.
"We only want people to take out the amount they can pay us back," Covert said.
Jamie Fulmer, spokesman for National Cash Advance and Advance America Cash Advance, said his company supports legal efforts to make the alternative of extended payment plans mandatory.
"We'd be supportive to have that codified into state law," Fulmer said. "Our desire is not to see the customer accumulate any additional fees. They come to us because it is a straightforward transaction." He said the company regularly offers extended payment plans with no additional fees.
Fulmer said "a small number" of checks are deposited when the accounts don't have sufficient funds, "but that's an attempt to get back our capital. We're not trying to worsen their financial position. We want them to appreciate the service so when they need that service, they will come back."
Yolanda Walker, spokesperson for Cashland, said her company also offers extended payment plans for no extra charges.
"Basically, the customer can repay the loan in four equal payments," she said, with no extra fees or charges.
The post-dated check the customer leaves at the time of the loan will be deposited unless the customer steps forward in advance to ask for extended terms, she said. Walker said the company follows the best practices recommended by the industry.
Dr. Adair Morse, assistant professor of finance at the University of Chicago, completed an eight-year study to be published soon that finds payday lending businesses can be a benefit to consumers.
"There are different types of borrowers that use payday lending services," she said. "Many payday borrowers are people with some sort of personal disaster - like a car break down - where they just don't have enough cash to get to the next payday. For these people, my study looks at the benefits. People in communities with payday lenders fare better in a number of well-being factors."
Morse's study was based in California using data from 1996 to 2004, but she said she built in controls for all income, education and employment factors so the results can be compared to other communities.
"For people facing personal disasters, there can be a well-being benefit to having access to a loan. For a huge portion of the population of people that have financial constraints, there is no other access to cash," Morse said. "Many of these people are capped on their credit cards and the banks are not interested in lending to them."
Morse said payday lending customers can get into more trouble through the loans when they do not use the borrowed funds for necessities.
"Some people may be using payday lending to purchase things that are not essentials. I did not study that," she said. She added that a "health shock" is another reason consumers might get into a dangerous cycle of paycheck lending because they face a continuing problem.
Morse said regulations such as limiting paycheck lending to an annual percentage rate to 36 percent will destroy the industry. "Thirty-six percent means payday lending goes away," she said. "Why is this the only opportunity for people in trouble? Maybe we need to think about broadening this market."
She said recent changes in the industry, such as the extended payment plans every business in Norwalk offers, are an attempt to make the business more responsible to consumers. "Part of it is a reaction to negative press and part of it is an attempt to recover funds," she said.
"It is more fruitful as a starting point for the industry to start with these more realistic payment plans," she said. "I'm very supportive of that program. It gives people options. In one pay cycle, you're not able to catch up."
A Web site for the payday lending industry "http://www.cfsa.net" explains the industry stance that payday lending is more economical than other options for some consumers. It said most payday lending customers are middle class Americans who use the service as a safety net when unexpected expenses occur.
Paycheck lending leads to irresponsible debt
One of the groups on the other side of the paycheck lending debate is the OCRL.
That group a 241-member group of advocates, religious leaders, labor organizations and community groups dedicated to fair and just lending practices by small loan lenders published "Trapped by Design" last month based on SEC filings from the state's top four publicly traded payday lenders.