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Government and Politics


What's next for payday lenders in Ohio?
Likely -- at least until fall -- it's business as usual
by WKSU's STATEHOUSE BUREAU CHIEF KAREN KASLER


Reporter
Karen Kasler
 
Paylenders continue to do business in Ohio, but under a different law.
Courtesy of Creative Commons
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The Ohio Supreme Court handed a big win to the payday lending industry last week by ruling that a two-week loan with a 235 percent interest rate is legal.

Statehouse correspondent Karen Kasler explains that the ruling may have been clear, but what happens next is not.

LISTEN: Kasler on payday lending impact, abbreviated

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LISTEN: Kasler on payday lending impact, extended

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In 2008, Ohio had 15 times as many payday lenders as were in business in 1996, and there were more of those quick-loan stores in Ohio than the number of McDonald’s, Burger Kings and Wendy’s combined.

That year, state lawmakers passed what was called the toughest crackdown on payday lenders in the nation. It put interest rate caps on those loans and repealed the check-cashing law, replacing it with the Short Term Lender Act. Darryl Dever was a lobbyist for the payday loans industry back in 2008. 

“I don’t think ‘stringent’ is the word. I think this bill, unequivocally, ends the industry in the state of Ohio.” 

A big loophole opens
The law not only passed, but survived an attempt to get voters to repeal it. But the law didn’t end the industry.

While several quick-loan stores did shut down, no payday lenders registered under that new Short Term Lender Act. They instead issued loans under the Mortgage Loan Act, which allows for loans that must be repaid in a single installment and a maximum annual interest rate of 25 percent -- plus fees. That’s not how it was supposed to work, says Bill Faith with the Ohio Coalition on Homelessness and Housing in Ohio. 

“We all thought it was going to be a crackdown. I think the vast majority of the people in the Legislature thought it was going to be a crackdown. And the fact that they hired good lawyers and figured out these crafty little weasly loopholes to try to get around the will of the voters and the law that was passed, we didn’t think that would stand.”

But it did
A decision from the Ohio Supreme Court lets that stand. The court sided with a Cashland store in Elyria, where Rodney Scott borrowed $500 in December 2008. He was supposed to pay back $545.16 two weeks later, and the agreement he signed said the annual percentage rate of the loan was more than 235 percent, when all fees and finance charges were added in. He defaulted, and Cashland sued.

The high court said since Cashland was lending under the Mortgage Loan Act, the single installment payment and interest rate plus fees were acceptable.  And the court’s ruling also says the Legislature must clarify what it intended for the law to do. But Faith says he’s not anticipating anything from lawmakers on this anytime soon, since they’re on a summer campaign break. 

“Maybe they’ll take it up after they get back. I wouldn’t expect action immediately, but I hope they do address this down the road now that the court has finally ruled on this case.”

The industry is pleased
The original sponsor of the 2008 bill, Sen. Chris Widener, did not return a call seeking comment. Cash America International, the parent company of Cashland, wrote in a statement that it’s pleased with the ruling on what it called the unambiguous language of the law and that the ruling “confirms that we offer legal, short-term credit options to Ohioans.”

While the panic over the proliferation of payday lenders during the recession has dissipated, there are still concerns about that industry in Ohio. A Pew Charitable Trusts survey last year found 1-in-10 Ohioans had used payday loans in the last five years — the fourth-highest rate in the nation.

 

Listener Comments:

there is obviously a need for the product and nobody else is stepping up to fill the void. More nanny state nonsense enough is a enough. Ban hammers next because people my hit their fingers. leave it to Sherrod Brown to come to the rescue the guy has never needed a payday loan in his life. another example of rich politicians being out of touch with the poor and the middle class.235 percent is also misleading that's an annual percentage rate based on if that borrower borrowed the same 100.00 every two weeks for an entire year!!!!! Federal reserve payday loan study is good reference for your readers. although long and boring. it shows a need for the product. finally personal responsibility also comes into play. be responsible because only you not Sharrod Brown,me or anyone else knows your finances like you do.


Posted by: darren (Oh) on June 25, 2014 11:06AM
The real problem is the barrier to entry into this market is so high it puts off competition leaving a clear playing field for big companies. The banks have abandoned small borrowers, payday loans are a variation of a trade that has gone on since biblical times. The solution is to allow small lenders into the market, give the borrowers a chioce and the cost of the money will fall like a stone. The last thing that anyone needs is more Government intervention. http://canadaloansearch.com/payday-loans/


Posted by: botty dos (NY) on June 17, 2014 6:06AM
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