Ohio's battle to end payday lending was a lot like trench warfare.
Everyone wound up dazed and bloodied, and for years afterward, it was hard to say who really won.
The fight in 2008 was over the 391 percent interest rates payday lenders charged in Ohio. But thanks to weak laws and industry maneuvering, lenders today can charge even more.
So when the Consumer Financial Protection Bureau unveiled plans to crack down on payday and its high-cost cousins this week, veterans of Ohio's payday battle felt like the cavalry had arrived.
"It feels good to see some help is on the way," said Bill Faith, executive director of COHHIO. "We've been in this very difficult spot for a number of years, with no relief in sight."
The bureau's proposed rule gives lenders a choice: Either verify an applicant can pay back the loan and still have enough money left for household bills or, alternatively, restructure the loans and offer consumers who fall behind chances to catch up without incurring more debt.
If you're used to traditional bank loans, that may not sound like a big deal. But payday and auto title loans aren't like regular loans. Targeted at people who live paycheck to paycheck, they're designed to be so hard to repay in full that borrowers repeatedly renew them - incurring new fees and falling deeper into debt each time.
When it studied lender records, the CFPB found that 80 percent of all payday loans are rolled over in two weeks (the typical loan term), and 60 percent of all loans are to borrowers who take out at least seven loans in row.
A study released last week by Pew Charitable Trusts found that auto title loans are similarly toxic.
"If I paid what they claim I still owe, I would pay $4,000 for a $1,500 loan," one auto title borrower complained to the Ohio attorney general's office, which has said it is powerless to help.
Another problem for borrowers has been overdraft and insufficient funds fees caused when payday lenders reach into their accounts unexpectedly for payments.
Under the proposed CFPB rule, lenders would have to give a borrower three days notice before they try to access his account. If a lender reaches into a customer's account twice for repayment and finds the funds aren't there, it has to get fresh approval from the borrower before it can tap the account again.
The rules would cover short-term loans (those due in less than 45 days) and impose similar conditions on longer-term loans secured by a customer's bank account, prepaid card or car.
In addition to covering payday and auto title loans, the CFPB's rule will cover high-cost installment loans, payday-style deposit advance loans still offered by a few banks and credit unions, and other credit products structured the same way.
"It's about what you're doing, not what you're calling yourself," said Faith.
That's good news, because states and the Department of Defense have been playing whack-a-mole with payday lenders. When DoD, concerned that payday debt was affecting the readiness of troops, issued rules capping loans to military members at 36 percent, lenders tweaked the products to get around the rules and opened more shops near bases.
After 2008, when Ohio capped interest on short-term loans at 28 percent, payday lenders took out licenses as mortgage lenders or credit services organizations (a statute originally built for credit counseling services) so they could continue to lend at exorbitant rates.
The CFPB rule is just a draft at this point, and the bureau makes it clear that its still weighing the alternatives to the ability-to-repay standard. You can read the plain-language proposal here. The rule has to clear a number of hurdles before it would go into effect.
Expect a fight.
Consumer advocacy groups across the country generally like the proposal but fear the options could create loopholes.
Payday lenders, meanwhile, have started throwing out the same "access to credit," "nanny state," "job killer" buzzwords we heard during Ohio's payday fight. Because, you know, companies apparently have the divine right to make a profit by picking the carcasses of people who already struggle to pay bills.
Ohioans demanded an end to predatory lending in 2008. Thanks to resolute inaction by our legislature, we're still waiting. The sad fact is, anything the CFPB comes up with will be better than what we've got.