An (updated) illustrated history of payday lending in Ohio: Plain Dealing

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The Consumer Financial Protection Bureau is expected to propose new rules this week that could finally reel in payday lending.

This illustrated history tells you everything you need to know about the checkered history of payday lending and its uncanny success in thwarting state and federal regulators so far.

Late 1980s to mid-1990s

Check cashers begin offering consumers loans against their next paychecks, secured by the borrower's postdated check. At $15 per $100, an annual interest rate of 391 percent, the loans are lucrative -- and in most states, including Ohio -- prohibited.

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In response to industry lobbying, Ohio's General Assembly grants payday lenders an exemption from the state's 8 percent usury rate cap, allowing payday stores to legally charge triple-digit interest.

The legislature ignores warnings from consumer advocates that payday loans are designed to be hard for consumers to pay off. Struggling borrowers instead repeatedly roll over, or renew, the loans, incurring new fees and going deeper in debt.

Consumer advocates accuse payday lenders of adding to the woes of borrowers who fall behind on payments by repeatedly depositing their postdated payment checks to wrack up insufficient-funds fees.

Banks, including Wells Fargo, get in on the action and begin offering customers expensive payday-style "deposit advance" loans against their next paychecks.

The Consumer Federation of America warns that payday stores such as Dollar Financial are striking "rent-a-charter" partnerships with federally chartered banks to evade state laws.

Ohio's legislature rejects a bill that would allow auto-title loans, payday-style loans secured by a borrower's car, when consumers rally against it.

Ohio bars payday lenders from using a state crime victims' law to sue borrowers for triple damages if their postdated checks bounce.

Over the objections of payday lenders, the Federal Reserve says payday loans fall under the federal Truth in Lending Act, meaning lenders must disclose the loans' annual percentage rate, or APR.

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Texas-based Ace Cash Express tries to flout Ohio law through its partnership with a California bank. Ace says the arrangement allows it to charge a 442 percent APR to Ohio borrowers. When Ohio's attorney general orders Ace to renew its state lending license or cease business here, the company sues the state.

Elsewhere, reports that payday borrowers take out as many as eight to 11 loans a year prod some states to crack down on payday.

The Office of the Comptroller of the Currency orders a national bank to cut ties with payday lender Dollar Financial, saying the risky loans threaten the bank's financial soundness. Worried payday lenders scurry to create partnerships with banks supervised by other regulators.

Lawsuits targeting interest charged through rent-a-charter agreements result in a wave of settlements by payday lenders. Ohio-based Check 'N Go agrees to forgive $5.9 million in debts it tried to collect from Indiana residents. Check Into Cash coughs up $5.5 million.

Ace Cash Express settles with Ohio, agreeing to take out a state lending license and to repay $250,000 to overcharged borrowers. To get the refund, customers must take out another Ace loan.

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Other banking regulators join the OCC in cracking down on rent-a-charter agreements. The Office of Thrift Supervision orders Ohio-based First Place Bank of Warren to sever ties with Ohio-based Check 'N Go's Texas stores. And the FDIC issues draft guidelines that make bank-payday partnerships more difficult to pull off.

The CFA releases a report showing payday lenders have changed course again, using Internet loans to dodge state usury caps. The CFA finds some lenders are charging annual interest rates as high as 780 percent.

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Georgia and North Carolina join a growing group of states banning payday loans. In Ohio, Gov. Bob Taft signs a bill raising the amount payday stores can lend from $500 to $800.

The Department of Defense warns Congress that payday-loan debts pose a threat to military readiness. The DoD says it has stripped service members of their security clearances

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because of their high payday debts. In response, Congress caps interest rates on loans to military members at 36 percent APR. Payday lenders quickly find loopholes in Defense rules and continue brisk business near military bases.

The Center for Responsible Lending reports that consumers lose $4.2 billion a year to payday loan fees. The group contends the payday industry's profits are driven almost entirely by repeat borrowing.

The mortgage meltdown ignites a full-blown economic crisis. As the nation rethinks its love affair with credit, consumer groups in Ohio push the legislature to curb payday. The Ohio Senate announces a bipartisan plan to cap payday loan interest rates.

Payday lending reform stalls in the Ohio House, where Minority Leader Joyce

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Ohio's new Short-Term Lending Act caps annual interest on short-term loans at 28 percent

Although payday lenders immediately launch a $16 million campaign to repeal the law, Ohio voters overwhelmingly support curbs on payday at the polls.

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The Plain Dealer reports payday lenders have ignored the Short-Term Lending Act en masse. Payday lenders become licensed as mortgage lenders or services organizations, claiming these licenses allow them to charge up to 700 percent APR.

The Obama administration sends Congress a proposal for a new regulator, the Consumer Financial Protection, to oversee consumer credit products, including previously unregulated ones like payday loans. Citizens for Responsibility and Ethics in Washington later reports that payday lenders gave $1.5 million to lawmakers in 2009 and 2010 in a failed effort to be exempted from bureau oversight.

President Obama signs the financial reform bill creating the CFPB. Although the Dodd-Frank Act bars the CFPB from capping payday interest rates outright, it permits the bureau to write payday rules to protect consumers.

An Elyria Municipal Court magistrate rules against Cashland in the first court test of Ohio payday lenders' attempt to dodge the state's 28 percent interest rate cap. When an appeals court agrees with the magistrate, payday lenders get the state Supreme Court to fast-track a review.

President Obama nominates former Ohio Attorney General Richard Cordray to lead the new CFPB. Republicans vow to block the appointment unless the administration agrees to weaken the bureau's authority, but ultimately, the senators relent.

Payday lenders try to get the U.S. House to transfer oversight of their industry from the CFPB to the OCC, but are stymied when the OCC says it doesn't want them.

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Policy Matters Ohio reports that payday lenders like Ace Cash Express and Loan Max, following payday lenders' lead, are using alternative lending licenses to issue auto title loans. The APR on some loans is as high as 350 percent.

Pew Charitable Trusts releases a report on the struggles payday borrowers face. Nearly 40 percent need to borrow from family, tap a tax refund or sell possessions to pay off their payday loans - steps they could have taken originally at a fraction of the cost.

Payday lenders claim new affiliations with Native American tribes that exempt them from state and federal law. The FTC sued them for making deceptive online loans anyway, and courts eventually side with the FTC .

The CFPB takes its first public enforcement action against a payday lender, ordering Cash America to repay $19 million in refunds and fines for overcharging 300 military members nationwide and for robosigning debt collection lawsuits in Ohio.

The Ohio Supreme Court sides with payday lenders who ignore the state's Short Term Lending Act. The court reasons that since the legislature failed to address the licensing loophole, legislators must have intended for the escape hatch to exist.

The CFPB releases its long-awaited report on payday loans, using data from lenders' own records. It finds that 80 percent of borrowers roll over loans within two weeks, and that most borrowers roll over loans so many times, they end up paying more in fees than they initially borrowed. The report sets the stage for the agency to write rules.

The Defense Department, acknowledging its previous rules didn't protect military members from predatory loans, proposes tough new loans that will restrict lenders from making payday loans, auto-title loans and a newer product, the high-cost installment loan, to military members.

In Ohio, the Hebrew Free Loan Association of Cleveland reports payday lenders are putting up barriers for seniors trying to pay off payday debts.

The CFPB announces a field hearing on payday lending Thursday in Richmond, Va. The bureau is expected to map out new rules covering payday, auto-title and high-cost small loans at the hearing.

Source: www.cleveland.com

Category: Payday loans

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