Predatory Payday-Loan Lending, Out of Hand in Ohio and Toledo?

Darlene*, a single Toledo mom of two children who used to work two jobs and now has a Master’s degree, should have been living the American Dream. Instead, she was weighed down by the negative impact of payday lending.

Her story began with $500, the amount she initially borrowed to pay for necessities like repairing her car and the gas bill. “It took me two years to get out of that first loan. Every two weeks I had to borrow more. I had nearly $800 in bills every month. It was a crazy cycle.”

Unfortunately, Darlene’s story is not unique. The Center for Responsible Lending (CRL) has found that 76 percent of payday loans are due to “loan churn” – where the borrower takes out a new loan within two weeks of repaying an earlier loan. This allows payday lenders to exploit dire circumstances, and that immediate need for cash creates hefty profits from outrageous fees.

State Representatives Kyle Koehler (R) left, Mike Ashford (D) , right, sponsored legislation to enact tough laws on payday lenders

State Legislation to Rein In Payday Lenders

Toledo’s State Representative, Mike Ashford, is co-sponsoring legislation, H.B. 123, with Rep. Kyle Koehler of (R-Springfield) that would revise Ohio’s lending laws. The proposed legislation would ease the burden on short-term borrowers, who often pay the equivalent of 600-700 percent interest rates. Rep. Ashford says that current laws “make it impossible to pay off loans. As a result, Ohioans are living behind the financial eight ball for a long time.”
Local organizations in support of this legislation include: Advocates for Basic Legal Equality (ABLE), which provides legal services and advocates for low-income Ohioans; the Toledo branch of Local Initiatives Support Corporation (LISC), which uses charitable lending to transform distressed neighborhoods into sustainable communities; and the United Way. Those three groups have collaborated on a Toledo ordinance that would restrict the zoning for payday lenders.

Valerie Moffit, Senior Program Officer for LISC Toledo, says that H.B. 123 would be an improvement to “current payday lending practices [with high interest rates and repayment terms] that drive our families deeper and deeper into poverty.” Reiterating this point is ABLE attorney George Thomas: “We see [payday lenders] as predatory lenders. They’re extremely harmful and they take money out of our community.”

Community Financial Services Association of America (CFSA), a trade organization that represents Advance America Cash Advance and about 70 other payday loan companies, did not return a call for comment on the introduced Ohio legislation.

Toledo City Councilwoman Cecelia Adams

Zoning restrictions

Over the past 20 years, the payday lending business has exploded in Toledo, and across Ohio. In 1996, there were only 107 payday loan businesses statewide. In 2015, that number jumped to 836, according to the Center for Responsible Lending. In Toledo, there are at least 17 advertised payday loan storefronts, as well as several auto title loan businesses.
According to the Housing Center analysis of data from Ohio Division of Financial Institutions, Department of Commerce, Lucas County had a population of 455,054 residents in 2010 and 67 payday lenders in 2007: an average of one lender per 6,800 residents, similar to the state average.

To limit this saturation, Toledo City Councilwoman Cecelia Adams introduced city zoning legislation permitting only one store per 30,000 residents and requiring 2,000 feet between stores.

On May 2nd, Toledo City Council voted unanimously to enact the payday loan zoning restrictions. Councilwoman Cecelia Adams spoke at the time of the vote: “It’s a serious problem in our community that this ordinance will help address… municipalities can restrict the zoning in cities, but they have no power over business practices… it’s overdue.”

Local initiative; employers collaborating

Despite the predatory tactics, the crisis speaks to the need for credit among struggling Toledoans. Gary Moore, Professor of Finance at the University of Toledo, describes payday loans as “risky loans [that provide financial opportunities to] people who otherwise couldn’t get loans. You don’t want to cut people off, but you don’t want people to be taken advantage of.”

Even if a borrower successfully pays back their debt, the loan is not reported to credit bureaus, which creates another problem: “You cannot build credit with payday loans,” explained Adams.

To provide a better solution, LISC Toledo, United Way of Greater Toledo, Lucas County Family and Children First Council, and the Filene Research Institute worked together to create the Employer Sponsored Small Dollar Loan (ESSDL). The program, championed by Lucas County Commissioner Pete Gerken, teams employers and several Toledo-area credit unions to provide loans between $300 and $1,500 that are repaid directly from a borrower’s paycheck over six to twelve months.

ESSDLs report to credit bureaus, which can help the borrower build credit-worthiness, and offer interest rates that are less than 17 percent, with no fees—
significant benefts over payday loans.

Valerie Mofit, Senior Program Officer for LISC Toledo

Varied impact

After her daughter was in a car accident, Darlene— once trapped in the payday loan cycle— was pleased to learn that her job offered ESSDLs. “I was able to borrow double what I would borrow at a payday lender,” she said, “but I paid much less interest, and the repayment came out of my paycheck over 10 months.”

However, many Toledo employers don’t offer ESSDLs, so individuals will continue to turn to standard payday loan stores to pay bills and cover emergency costs.

The new legislation, H.B. 123, would, among other things:

  • Limit a person’s monthly payment on the loan to 5 percent of one’s gross income.
  • Spread out payments over longer periods of time on larger loans.
  • Limit the interest rate on loans to 28 percent.



  1. Darlene’s story didn’t begin with a $500 dollar loan. No, the real story is that someone with a postgraduate degree can not afford a $500 dollar emergency. 40% of Americans can’t afford a $400 emergency, and it transcends race, class and financial access. That’s the ugly truth no one wants to face. You’re oversimplifying the problem blaming it entirely on payday loans.

  2. Was Darlene not able to decide for herself whether or not she could afford the $500 loan? Did she read the loan agreement? I guess Darlene shouldn’t have to be responsible for her actions. It’s the payday lender who, by the way, was probably the only one that would make a loan to Darlene because her friends, family and state or local governments weren’t willing to do so, is the one to blame. I guess Darlene would have been better off not taking the loan, not getting her car repaired, lose her job because of no transportation and get her gas shut off. How come the State doesn’t step in and dictate how much McDonald’s can sell their burgers for? Or how much the grocery store can mark up the price of milk, eggs and bread? No one gets upset over these things. Yet some adult who walks into a payday store because there’s no one else in the world willing to lend them money to get out of a financial emergency and doesn’t bother to decide for themselves if they can afford a loan at the terms being offered is never held accountable or responsible for their decisions. 28% cap makes emergency loans unprofitable. So, pass the legislation and then tell Darlene what she should do when no one will lend her money for an emergency. But, you’ll never hear any legislator or consumer advocate give you the solution to that problem. They don’t have the answer. If 28% loans are profitable to people with little or bad credit, why isn’t every bank on the corner making these loans? Why haven’t 28% payday lending stores opened up across the country? Seems like a cash cow opportunity. Competing with all those triple digit interest rate lenders when you’re lending at 28%. You would take virtually all the business in that space. Maybe Darlene should change careers and go into the 28% payday lending business.

  3. I really don’t see the issue with some of these loans if they’re needed and the borrower is responsible. There was a time when we had to borrow a few hundred from and the payback wasn’t an issue. Our credit card is $126 a month and $86 goes to them every month “now that should be illegal or capped!”

  4. There’s no doubt that there needs to be tighter regulation on payday and title loans. Some lenders are getting ahead of the regulation, like, and offering sub-50% APRs on loans for the credit-challenged. This starts getting close to the interest rates charged by high-risk credit cards.

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