Brown Seeks Support to Curb Payday Lenders’ Abuse

WARREN, Ohio – Efforts to curb the abuses of predatory lenders – companies that offer payday advances and short-term loans secured by car titles – are like playing Whac-a-Mole, U.S. Sen. Sherrod Brown, D-Ohio, told a panel here Monday.

“We change the rules and they find new ways to stay in business,” he told the Trumbull County Partnership for Financial Empowerment. Nine of its 10 social-services agencies were represented on a panel discussion at the Warren YWCA.

The senator insisted he does not want to put [payday advance or car-title lenders] out of business, but to “force them to lower their rates.” He wants stronger enforcement of the rules so those who borrow don’t fall into a “rat hole of debt” from which they cannot emerge without either ruining their credit ratings or declaring bankruptcy.

Brown came here to inform the panel of congressional efforts to strengthen the regulations the Consumer Financial Protection Board proposed June 2, which include having applicants provide proof of or verification that they can repay the sums borrowed without having to take out additional loans. Another is limiting the number of times per year a predatory lender can collect a debt through an automatic deduction of a borrower’s checking account.

The repeated deductions, Brown said, often result in overdrafts and subsequent NSF fees banks impose, causing the borrowers to fall further behind.

Among the statistics Brown offered:

  • Payday lender storefronts in Ohio outnumber the number of McDonalds and Starbucks.
  • Last year, these storefronts collected more than $500 million in fees alone.

At the table were two women from Warren, Christina Sarno, age 27, and Latita Parnell, 34, both single moms with four children. Both related horror stories of how they found themselves caught up in debt they could not repay. Parnell, whose saw no end to $700 monthly debt payments as she worked part-time to provide food and shelter for her children, erased hers through filing for bankruptcy, she said.

Sarno, who also worked part-time, had just given birth to her first child when she took out a car title loan of $500 to pay for its repair.

“I owed more than I could pay back [in the short timeframe] on my income,” she said. Sarno approached a payday lender to repay the car title lender, she related, and “I was surprised that they would lend to me.” She knew the risks “but I was desperate.” In over her head financially, her car was repossessed and “I could never afford to pay more than the interest.”

Both women were evicted from their apartments for not paying their rent, they said. Parnell and her children went to a homeless shelter.

Sarno put her possessions in storage but still “lost everything.”

The panel agreed that the women’s stories are common despite effort their efforts to direct low-income residents to other sources of finance and at consumer financial education.

The panel consisted of Ginny Pasha, president and CEO of United Way of Trumbull County and chairman of the Partnership for Financial Empowerment; Victor Russell, regional operations manager of Apprisen; Tabatha Johnson, Trumbull Metropolitan Housing Authority; Keisha Bals, Beatitude House; Covi Delgado, Trumbull County Veterans Services Commission; Diana Eggleston, Catholic Charities; Sister Jean Orsuto, Emmanuel Community Care; Kenya Howard, executive director of the Warren YWCA; Karyn French, District 11, Area Agency on Aging; and Kalitha Williams, Policy Matters Ohio.

Apprisen’s Russell asserted many of the abuses could be averted if those who borrow from payday lenders were aware of the less costly alternatives.

His research found that many borrow not because they encounter an emergency – for example, car repairs, unexpected medical expense – “but everyday expenses.”

Containing expenses, setting and adhering to a budget, would make payday lenders less attractive, he said. A woman in Youngstown who took out a payday loan to pay for car repairs took the bus to work the two weeks her car was in the shop, he said. She realized how much she saved on transportation expense, Russell continued, but resumed driving to work after her car was returned.

The Veterans Services Commission’s Delgado told how the wife of a veteran was paying $809 a month to a payday lender. She and her husband were barely getting by and the debt was more than they could repay and meet their other expenses.

Help from her agency was enough and emergency grants attacked symptoms, not the underlying problem.

In an interview after the presentation and panel discussion, Brown conceded that predatory lending is little more than legal loan sharking – “Predatory lending, legal loan sharking, call it what you will” – and that enforcement of nonbank sources of financial services, including hedge funds, is nowhere near the regulatory enforcement that governs banks.

The Consumer Financial Protection Board lacks the tools and number of examiners the Federal Reserve and Office of the Comptroller of the Currency have, he said. “There isn’t much enforcement,” he said, of the laws and regulations on the books.

He left unanswered whether the CPFB would be able to hire more enforcement officers should the new regulations he adopted.

Repeating that he does not want to put payday lenders out of business, just have them lower their rates, he admitted he “couldn’t define a predatory rate, but you know it when you see it.”

Copyright 2022 The Business Journal, Youngstown, Ohio.