How David Beat Goliath in the Struggle to Regulate Payday Lending

1. How David Beat Goliath in the Struggle to Regulate Payday Lending Overview of Presentation • Background on the Campaign • The Ballot Initiative • Current Challenges • Ten Reasons for Success • Lessons Learned • Web Sites and Resources

2. Background on the Campaign June 2, 2008 Governor Ted Strickland signed H.B. 545 into law • culmination of three years of tireless advocacy • 246 member Ohio Coalition for Responsible Lending • the coalition responsible is comprised of : • faith based, consumer, • housing advocates, • community action agencies, • labor, legal aid societies, and • other health and human service providers

3. Model Legislation • Ohio’ s bill is a model for other states • caps interest rates at 28% for a two week loan • cannot borrow more than $500 or 25% of the customer’s base monthly income • limited to one loan at a time and four loans per year • loan terms must be at least 31 days • a ban on internet lending • calls for a linked deposit program - gives incentives to banks and non-profits to make small loans.

4. Voices of the Victims • Among those present at the bill signing were three of the people who helped us put a human face on the problem of payday lending • their courageous testimony was essential to our victory…Bev Cousar, Gail Meyers and Terrence Jent • Bev testified at hearings on the House and Senate side; told a compelling story about going to a payday lender to help her son in Texas with some rent assistance • a $500 loan resulted in her eventually having to pay $3,000 • placed tremendous stresses on her family

5. Gail Meyers, a social worker, got into a similar debt trap • “the best thing a consumer can do is to never take that first loan” • 328,000 borrowers are trapped annually in Ohio by the business model of the payday lenders • borrowers take out 11-12 loans a year • payday lenders are a $2 billion industry that strips Ohioans of about $318 million in wealth annually. ($34 million from Cuyahoga County alone)

6. The Industry’s Perspective • Lynn DeVault, president of Consumer Financial Services Association, (the lobby for the paydayers) • typical customer is a single mother • “This is a life style product that our customers use for about two years.” • the industry frames their toxic product in the language of choice • from their perspective, our coalition is not really looking out for the best interests of consumers…we are denying them choice.

7. The Importance of Research • study by Policy Matters of Ohio showed: • virtually impossible for a family of three earning between $25,000-$35,000 to afford a two week, $300 payday loan • exacerbates the problems of hard working Ohioans: • high home foreclosures • deep consumer debt • high energy costs • double digit increases in some food items • don’t Advance America or Ohio • Ohioans are pushed and pulled into a deeper cycle of debt

8. Alternatives • alternatives to payday loans include: • the stretch pay product offered by about 34 credit unions, small installment loans • the linked deposit program that will be catalyzed in H.B. 545, equity line of credit, and • borrowing from a family member or friend This legislation catalyzes broader discussion in the state about small loan products with fair interest rates and reasonable terms.

9. A Whistle Blower Terrence Jent (one of three whistle blowers) –worked 4 years in the industry • nearly one-half of customers (at both companies) were individuals drawing some form of Social Security or other retirement benefit • issue loans to individuals drawing worker’s compensation, unemployment benefits, and dependent “supplemental income” • quick access to cash makes it an easy outlet for anyone in need • a short term loan quickly turns into a second income for the borrower, becoming dependent on the ability to take the loan out every two weeks • in one year, an $800 loan adds up to $2,925 in fees alone - not touching the principal of $800 • harassing collection procedures including: harassing phone calls, three or four times a day • personal references receive phone calls • a borrower might be visited at home or work.

10. More Background • Ohio grew from 107 payday lending stores in 1996 to 1,638 stores today • Ohio became the second largest market for such stores in the nation • Ohio became ground zero for the survival of the industry • payday lending was a creation of the Ohio General Assembly in 1995 • the legislation that gave birth to the industry is the epitome of special interest legislation • the industry crafted the bill that eventually became law; permitting them to exempt themselves from Ohio’s usury laws; allowing them to charge 391% interest on a typical two week loan • the previous law was extremely deficient and consumer protections were virtually non-existent • Reform was long overdue

11. Modern version of “David and Goliath” began in August 2005 • the Cleveland Diocesan Social Action Office, (the social action arm of the Diocese of Cleveland), convened a gathering of advocates for low income people, faith based and consumer groups, and representatives from housing, labor, and community action agencies • intention was to test out the possibility of working together to pass a bill that would protect Ohio consumers from the predatory practices of payday lenders • part of the formula for our success was to recruit passionate religious leaders, organizers, researchers, lawyers, communication experts, victims, state house insiders to the cause • For the next two years: • we researched the best legislation nationally, • consulted with a number of outside experts, and • mapped out strategy to try to put payday lending on the agenda of Ohio politics • learned that 12 states did not allow payday lending, including Pennsylvania and West Virginia

12. Talent - Nelson Fall of 2006: • federal action caused us to develop the strategy we eventually advanced in the Ohio General Assembly • As part of the 2007 Defense Authorization Act, the Talent-Nelson Amendment was attached that capped interest rates at 36% on small loans to military personnel • President Bush signed this bill into law • The military actually pushed for this amendment because of the high concentration of payday lenders near military bases. They were so severely preying on personnel and their families that the military was concerned about the economic hardships resulting, family stress and the overall detrimental impact on morale. In brief, our coalition adopted the position that if it was good enough for the military, it was good enough for all Ohioans.

13. The Campaign was Launched Spring of 2007: • key meeting held between members of our coalition and Representative Bill Batchelder (R-Medina) • in search of a legislative sponsor and champion within the legislature • Batchelder fit our profile: • very distinguished 30 year career in the legislature • became a Common Pleas Judge in his home town • returned to the OGA in January of 2007 • widely known for his intellect, integrity, understanding of the Ohio Constitution, and ability to work in a bi-partisan manner - despite very strong conservative philosophy regarding role the of Government.

14. June of 2007 (significant launching point) • coalition had grown to more than 150 organizations • we had the framework for a bill, and • we had our sponsor • Batchelder and the coalition were “ready for prime time” • early June, unveiled our legislation, attended by some 34 legislators or their aides • Interest in co-sponsoring a bill was gathering momentum • Our intention from the beginning was to make this a truly bi-partisan effort

15. The Ugly Politics Unexpected Brick Wall In the process of asking Democrats to join as a sponsor, an interesting dynamic Was unfolding. After expressing initial support for signing on with Batchelder, the legislator would back off after discussing the matter with the House Minority Leader Joyce Beatty. By my account, this happened at least five times. The reported position of Rep. Beatty, who represents some of the poorer neighborhoods of Columbus, was she did not want to help Batchelder’s political aspirations for Speaker and she believed that her constituents needed these loans. It was not until there was a chance meeting in a revolving door at the Riffe Center that we found our sponsor, Rep. Bobby Hagan, (D-Youngstown), a veteran of many legislative battles, who agreed to join us in this effort. The State House version of the “odd couple” was formed…the most conservative legislator teaming with the most liberal over a matter of principle and good public policy. As an aside, Hagan had the integrity and guts to break the stalemate in the Democratic caucus by challenging the Minority Leader. So, in October, 2007, Representatives Batchelder and Hagan introduced H.B. 333.

16. H.B. 333 • H.B. 333 capped interest rates at the Talent-Nelson level of 36% on small loans $800 or lower • prohibited a check cashing business from making a loan to a borrower who had an outstanding loan with any other check cashing licensee • established a minimum of six loans per customer per year • created a link deposit program, and • expanded consumer counseling • December, 2007, H.B. 333 - heard in the House FIRES Committee, chaired by Representative Chris Widener (R-Springfield) • At the same time, two other payday bills were introduced; • H.B. 337 - the industry supported bill -- masqueraded as reform and would have allowed them to continue to conduct business as usual; • H.B. 358, introduced by Representative Tyrone Yates (D-Dayton), attempted to cap interest rates at 25%

17. FIRES Committee Politics • our bill languished in the FIRES Committee until April 30, 2008 • the committee is comprised of legislators - reluctant to place any regulation on business • the chairman was struggling to find consensus or perhaps a compromise between the industry and our coalition • the coalition held the ground that without an interest cap, there could not be substantive reform. Turning point in campaign: • Cleveland Plain Dealer disclosed that the husband of the House Minority Leader was a registered lobbyist for a payday lender in Virginia • A subsequent article in the CPD indicated that the industry attempted to give the black caucus $5,000 toward a golf outing and that Otto Beatty had hosted and been present at the Democrats’ Retreat in August 2007 when various issues were being discussed.

18. after the Beatty revelation, Speaker John Husted signaled his support for capping interest rates • the Governor went on record in support of a 36% rate cap • April 30, Rep. Widener introduced H.B. 545, which had even stronger provisions than 333 • the industry left reeling from these developments • in the month of May - pressure for reform was in full throttle • May 6, the industry closed many of their stores around the state and bussed employees to Columbus for a rally, wearing yellow badges that called for “saving my payday loan”.

19. during the month, the state house was swarming with lobbyists for the industry • this virtually unfunded grass roots campaign, OCRL v. some of Columbus’ best lobbyists, an extensive TV and radio campaign and CEO’s ,representing the top national chains, testifying at hearings • the industry remained uncompromising in their approach to their product and refused to change their business model • the Ohio House passed H.B. 545 on May 8, 2008 by a vote of 69-26. • the bill was assigned to the Senate Finance Committee, chaired by Senator John Carey (R-17)

20. the coalition saw similar dynamics in the Senate Finance Committee that we witnessed in the House • not until Senator Jeff Jacobson was assigned temporarily by President Harris that it became clear to us that 545 would pass • Prior to the Senate vote - national payday lenders made public statements that they would begin closing stores two weeks after the bill became law • On May 14, 2008, H.B. 545 passed the Ohio Senate by a vote of 29-4 • Due to some technical cleanup, the bill returned to the House on May 20, 2008 for a 70-24 vote in favor of concurrence.

21. The Ballot Initiative • The Consumer Financial Service Association commits to a ballot initiative • Hires top Columbus law firm and lobbyists • Spends $22 million in major ad campaigns • Hires petition gathering firm and experiences irregularities” • Advocates run the ultimate grass roots campaign

22. On June 3, 2008, the day after the historic bill signing by the Governor, the CFSA announced that they had filed papers with the Secretary of State indicating their intention to circulate petitions to place the issue on the November ballot as a referendum. State law requires that they gather 241,365 signatures across 44 counties within a 90 day period. The Ohio Coalition for Responsible Lending intends to develop a grass roots campaign that will defeat any effort to repeal H.B. 545.

23. The Current ChallengesUpdate on OCRL The Next Phase of Operation of the Payday Lending Industry • despite the passage of H.B. 545 - there are signs that many lenders are operating under other Ohio laws • when state laws are passed - lenders try to find other ways to survive • the payday lending industry is very creative • some 300 stores have closed…down from a high of 1,700 • others are trying to operate under Ohio Small Loan Act (more than 700 applied) and the Ohio Mortgage Act (more than 550 have applied) • according to Business First, these licenses could allow them to charge APRs as high as 223% on a two week $200 loan • lenders now offer other services like tax services, and assistance with insurance

24. The Current ChallengesUpdate on OCRL Finally, it has been reported to us that one prominent actor has done the following: Under the small loan act, they charge $15 as a one time fee, up to $500…anything beyond $500, they charge $30. Then they can charge 28% interest…they cut a check for the borrower and then charge them 10% to cash it. We believe that this constitutes an unfair business practice and are considering our next steps.

25. The Top Nine Reasons for Success • Anti payday lending message was framed successfully (391%) and in the public arena due to the nearly year long legislative campaign. Approximately 150 articles ran in newspapers throughout the state during this time frame. Media coverage and editorial support continued in an upward trajectory throughout the ballot campaign. There were 297 news articles and editorials in the ballot campaign period. This effort required considerable talent and relentlessness since the issue was suffering from media fatigue. • We retained the use of 391% legislative message in the ballot campaign. This message polled off the chart in our one and only voter survey. Our national partner (CRL) helped keep core messaging consistent throughout the legislative and ballot campaign.

26. The millions the payday lobby spent on paid media actually helped. The national payday lobby ads never mentioned payday lending because of their negative brand. The ads raised more questions for the voters than they answered and encouraged voters to explore what they were about. • Successfully lobbied for placement on the statewide Democratic party sample ballot. Many local parties also put issue 5 on their county sample ballots. For the record, we asked the Republican Party but they declined.

27. 5. Ohio being a battle ground state gave lots of opportunities to make direct contact with voters at many events both democratic and republican. Working the early voting polling locations in Franklin, Summit, Cuyahoga, Montgomery and Hamilton also brought us in direct contact with voters. We also did thousands of targeted robo calls. 6. In addition to widespread religious leader support, there was a unique combination of Catholics and United Methodists who provided substantial leadership, network and grassroots support. Catholics and Methodists in Ohio have a combined membership of 3.2 million.

28. 7. Due to out front support of the big three, e.g. Governor, Speaker and Senate President, many groups that may have endorsed the opposition remained neutral. 8. Knowing we did not have time to build our own organization, we worked established statewide groups for support and dissemination of the message. We also worked statewide groups to remain neutral. We developed the “Ask List” and worked it throughout the campaign. (See attached list) We also worked the opinion leaders, e.g. mayors county commissioners and township trustees as we had in the legislative campaign.

29. 9. Literally hundreds of people in Ohio worked this issue throughout their networks. We also added a new social networking component, including Facebook, Blogging, viral video, Goldmail, email alerts and sponsor links.

30. 25 Positive Lessons Learned in the Payday Lending Campaign of The Ohio Coalition for Responsible Lendingby Thomas J. Allio, chair of OCRL – June 12, 2008 • Build a broad based coalition that is committed to an interest rate cap and the elimination of the debt trap. • Identify specific roles of your core, coalition leadership and empower them to carry out their responsibilities. • Develop practical education and action resources for the members of your constituency. • Make use of all the technology at your disposal, i.e. robo calls, web site, online petitions, conference call news conferences, You Tube.

31. Don’t worry about who gets the credit and you can accomplish anything. • Remain committed to a bi-partisan approach that does not show favoritism to any particular caucus. • Choose your legislative champions wisely. • Take the time to educate all members of the General Assembly and then “educate them again and again.”

32. Do your homework before visiting legislators; know their district; their priorities; the committees on which they serve; their aspirations; and from whom do they receive contributions. • All Politics is Local. Ensure that each member of the General Assembly benefits from research that is pertinent to his/her district; meets directly with his/her constituents; and reads about the issue in his/her local paper. • Have a clear understanding of where power resides in the committees, caucuses and within leadership. • Utilize “inside power brokers” who can accentuate your access and voice.

33. Work closely with the member’s staff. Work closely with the member’s staff. • Be resilient when the campaign takes a negative turn and the momentum shifts. • Cultivate your allies in the media, both in reporting and editorial. • Take every media call and opportunity that comes your way. Treat the small, weekly paper with the same respect that you would give a major daily.

34. Ensure your spokespeople stay on message and refrain from personal attacks. • Articulate the moral, as well as, the economic dimensions of the issue. • Identify credible “victim testimony” and take the time to adequately prepare them for the various hearings. • Regularly communicate with the members of your coalition about successes and strategies. Everyone wants to be a part of a winning coalition.

35. Debate your opponents and appear with them at public forums. • Anticipate that your opponents will do almost anything to undermine your coalition or your credibility with the legislature. • Make use of “outside experts” for advice, research, and testimony. • Avoid making any long term (legislative) enemies in the process. • Have some fun during the campaign and be gracious in victory.

36. Web Sites www.ohiocoalitionforresponsiblelending.org www.yesonissue5.org