Former Payday Lenders Opt for ‘Short Term’ Loans

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Back before last fall’s elections – supporters of the payday loan industry warned that thousands of employees would lose their jobs if loan rates were capped at 28 percent. The legislation passed anyway and many of those payday lenders are still in business – but lending money under different terms.

A throng of payday loan employees converged on Columbus last year with a simple message: “Save our jobs! Save our jobs!”

Payday lending signs may still be in a few store windows – or implied in company names such as Check N Go and CheckSmart. But most payday lending is gone; killed off by House Bill 545 and upheld by voters in November. Ohio law caps yearly interest rates on short term loans at 28 percent, much lower than the nearly 400% interest that pay-day lenders were charging. At the time, pay day lenders predicted thousands of job losses.

TV ad: “Is this the time to allow government to shut down an Ohio industry eliminating 6,000 more valuable jobs?”

But a year later, while the number of short term loan agents has fallen, many are still around. The number of Ohio lending stores has dropped – from 1600 last year to around 1,000 now.

The companies are looking for other ways to make money. They have applied for other types of lending licenses.

Lisa Ferguson is a spokeswoman for Check Into Cash which has 60 Ohio stores and 147 employees.

“We just couldn’t offer the payday loan part,” Ferguson says. “The new law doesn’t even allow you to break even on a transaction. We can’t keep our doors open and pay our employees and pay the utilities under the new law.”

So Check Into Cash stores and others like them are cashing checks and money orders for a fee. That goes for the check-cashing chain Check N Go. Jeff Kursman is their spokesman.

“We also offer check cashing and a few other additional services but the combined offering that we currently have here in this state does not equal the customer base or the services that we were previously offering,” he says. “So there are people that used to take advantage of our product who do not any longer take advantage of our product and the long term prospects are still to be determined in this state.”

Both companies still lend money, they just do it under different licensing guidelines. Lending in Ohio is regulated by the Department of Commerce. Spokesman Dennis Ginty says payday lenders were applying for different kinds of lending licenses as far back as last May.

A variety of [lenders] previously known as check casher lenders – commonly referred to as payday lenders – many of those have decided to opt for another type of consumer finance company license,” Ginty says. “Many have chosen to seek and obtain a license under the Small Loan Act or the Ohio Mortgage Loan Act.

The small loan and mortgage acts allow lenders to make unsecured loans with yearly interest rates of up to 28 percent. But these storefront lenders are allowed to add loan origination fees which drives up the cost of borrowing.

For example, say you borrowed $500 from a payday lender. In two weeks you’d have to repay the store $536; $6 in interest, and $30 for the origination fee. That would make the yearly interest rate equal 185 percent. That’s a lower rate than you would’ve paid last year, but still steep.

Lenders still say they don’t know how long they can stay in business. Check N Go’s Jeff Kursman says about half of the company’s 60 stores in Ohio have been closed and 70 positions eliminated.

“We have fewer customers; we have a lot fewer stores,” Kursman says. “The product did not generate the type of revenue that our previous product did.”

Some Banks and credit unions are tapping into the short term loan market. 37 Ohio credit unions offer what’s called Stretch Pay, which is a 30-day line of credit at 18 percent interest. You must be a member of the credit union to apply and you have to pay a yearly fee of up to $75.

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