Ohio Senate Poised to Increase Unbankable Loans by 4x as Pew/Wright-Patt Credit Union HB123 Moves Through the Senate
By Cyndy Rees
The Ohio Legislature is working overtime to put Payday Lenders out of business and pave the way for credit unions to have a legally protected monopoly on the millions of underbanked Ohioans. As an added bonus, Ohioans will lose tax revenue as well.
3rd Rail Politics can confirm that Credit Union League lobbyist Cory Fleming has established a link between Pew Charitable Trust and Wright-Patt Credit Union, claiming to our sources that Pew had indeed approached Wright-Patt about creating an alliance on H.B. 123, an alliance that could potentially be very financially beneficial to Wright-Patt.
The Credit Union League has been very generous to legislative caucus funds as well as key legislators involved with the decision making on H.B. 123. According to Secretary of State records, since H.B. 123 was introduced, the League has made maximum contributions to the Ohio Senate and House Republicans, as well as contributions to the Democratic caucuses in both chambers, in excess of $6,000.00. Speaker Pro Tempore Kirk Schuring (R-Canton), an integral player in the early rounds of H.B. 123 Amendments, received $8,894.00 in donations since last November while House Minority Leader Fred Strahorn (D-Dayton) received $2,500.00. Wright Patt Credit Union CEO Doug Fecher made 3 donations totaling $1,675.00 to the Credit Union League PAC over the same period of time.
The Ratner family has given around $1.2 million to candidates over the past 10 years and is considered one of Governor Kasich's closest, if not the closest ally.
The Ohio Senate Finance Committee will hold a rare summer Monday hearing on H.B. 123, the bill originally sponsored by Representative Kyle Koehler (R-Springfield). They hope to have it voted on by the full Senate next week.
Representative Dorothy Pelanda (R-Marysville) shared with the group on Friday that she expected the Senate to move on the bill, and the House to come back into session this summer to vote on the changes to this one piece of legislation.
Why the rush?
The key players supporting H.B. 123 are the Pew Charitable Trust, Wright-Patt Credit Union, and Velocity Solutions.
Wright-Patt Credit Union has over $4 Billion in assets and is the largest credit union in Ohio with over 360,000 members. CEO Doug Fecher, has actively lobbied in support of H.B. 123. In 2002, the Credit Union Times Magazine said “Fecher doesn’t necessarily believe that competition from credit unions will put commercial payday lenders out of business. He expects that, ultimately, legislation will do that.” It appears that Mr. Fecher’s wishes may come true – and if true, he and others like him stand to benefit financially.
Wright-Patt Credit Union had $40 million in net income last year which is more net income than the entire storefront payday loan industry in Ohio combined. Even more alarming, as a legally-classified not-for-profit organization Wright-Patt paid ZERO in income tax on its fat-stack of profits. More on this unimaginable fact later.
Banking industry experts explain that if Fecher's credit union is like others, and we have no reason to believe it is any different, we can assume that a substantial amount of that revenue comes in the form of overdraft protection and NSF (non-sufficient funds) Fees. Remove overdraft and NFS Fees, and you could well remove net income.
Overdraft protection, one way in which credit unions allow their members to borrow, is one of the key reasons payday lenders exist in the first place – payday loan customers recognize they can borrow from the payday lender at rates less than what banks and credit unions provide through overdraft.
Substantiating this fact, the Consumer Financial Protection Bureau (CFPB) released a report in 2014 that addresses the impact of opting in to overdraft services for debit card and ATM transactions. The study found that the majority of debit card overdraft fees are incurred on transactions of $24 or less and that the majority of overdrafts are repaid within three days. Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000% APR.
In Wright-Patt’s defense, they would not dare charge 17,000% APR to their customers. They do not charge $34 as their Overdraft or NSF Fee, they “only” charge $19 and $25 for these services which under this same analysis would equate to APRs ranging from 950% to 1,350% -- again, 3X – 4X the rate of what traditional payday lenders charge.
This Wall Street Journal article describes just how big of a market this is – $33.3 billion in 2016, the highest level in seven years. The dollars earned by banks and credit unions on these products are almost 4X the size of the payday loan market that Pew estimates to be $9 billion.
Traditional overdraft fees (aka, bounced check fees) charged by banks and credit unions like Wright-Patt range from 1,000% - 1,200% APR. For example, if a credit union member were to bounce a check for $100 and were afforded the coveted privilege of “overdraft” and the customer paid that back (of course “payback” occurs when the member gets her direct deposit – the credit union stands in the front of the line of all others when it’s time to get paid because they hold the account) in 10 days and the cost of overdraft privilege was $34, the APR associated with that transaction would be 1,241%. Of course this is not a “loan” so they don’t have to comply with Federal Truth in Lending disclosures, therefore, the APR never has to be disclosed.
Why would the credit union try to replace their "overdrafters" with "borrowers" since the price associated with overdraft protection typically carries a price tag 3X-4X what a typical payday lender would charge?
The answer lies in this 33 minute webinar by Christopher Leonard of Velocity Solutions (Velocity Solutions, a FL based company which does no business in Ohio, has provided proponent testimony for H.B. 123 in both the House and Senate). The video appears on the National Association of Federally Insured Credit Unions website with "research" provided by none other than the Pew Charitable Trust.
Who is Velocity Solutions you ask? Velocity Solutions provides software solutions to community banks and credit unions so they can provide these loans, which explains their interest – their financial interest in H.B. 123.
You will notice the webinar is titled, "How Credit Unions Can Win Against Payday Lenders."
Mr. Leonard lays out his game-plan for how credit unions can attract the payday loan customers - and the beauty of his plan, as he explains, is that it doesn't even "cannibalize overdraft particularly, because these are different groups and our data has shown that."
Please take note that the basic components of H.B. 123 are included in this webinar.
If you do not have time to watch the full webinar, the most distressing information can be found between 10:30 to 15:00 and 19:30 to 22:00.
We have also included these screenshots from the webinar for your reference:
The bottom line, H.B. 123 was designed by Pew for credit unions in an attempt to convert payday loan customers to increase the number of credit union “overdrafters” and borrowers. H.B. 123 can only work in banks and credit unions – if it can work at all. It cannot work for the payday lending industry and it certainly will not work for the vast majority of Ohioans who the payday loan industry currently serve as most will be ineligible for these types of loans leaving hundreds of thousands of Ohioans without access to credit. If payday lending customers are faced with financial emergencies, most of them cannot go to Wright-Patt Credit Union and qualify for their StretchPay product.
This is taken directly from Wright-Patt Credit Union's website:
Who can qualify for a STRETCHPAY loan? To qualify, you have to be a member of Wright-Patt Credit Union for 120 days, be able to show proof of income, have no delinquent accounts at Wright-Patt and not be in the process of filing for bankruptcy. We will also do a minimal credit review of your history with payday lenders.
A Payday lending customer faced with a financial emergency cannot wait 120 days for a solution. The need is now. The solution needs to be now.
Pew's Alex Horowitz who has testified in both the House and Senate as a Proponent of H.B. 123 says it best “It is also not clear whether subprime customers will choose less expensive bank loans over payday lenders since many consumer like the speed and certainty those companies provide. A lower price point and more affordable payments is not enough.”
And what about the tax loss for Ohioans? The Payday industry operates like a true business (like banks) and because they generate income, they must pay taxes — seems reasonable, right? Well credit union are “co-op’s” and as such they are exempted from paying taxes. Credit unions are created and operated for the “benefit of their members” – right? One might think the privilege of membership would carry lower rates and fees — and that used to be the case, but not anymore! This study published in the Credit Union Times Magazine shows that “credit unions no longer offer overdraft fee advantage over banks.” According to this study, the average bank overdraft charge is $30 while the average credit union charge is $29. One lousy buck! Wright-Patt’s 2017 financials show $40,000,000 in Net Income — TAX FREE!!! Of greater interest, Wright-Patt Credit Union had $80 million in Non-Interest Income last year.
Should H.B. 123 pass, these same consumers, should they even be eligible for the new credit union loans, will pay on average 3X-4X as much as they did for the payday loan and as much as 17,000% APR according to Consumer Financial Protection Bureau for overdrafts from the credit union. All the while, credit unions enjoy this new-found market share and these new-found profits, TAX FREE.
With the possibility of a substitute version of H.B. 123 being amended and voted upon by Senate Finance, and then the whole Senate this week, Wright-Patt Credit Union's CEO may achieve his dream of legislatively wiping out his competition, courtesy of the unsuspecting Ohio General Assembly.
It appears all the false commentary from newspaper editorials, Pew and legislators being motivated by paternalism or consumer protection are really cover for collusion and another 'pay to play' tainted piece of legislation. It is no wonder the FBI is involved.