Consumer advocates criticize proposed changes to Ohio payday lending bill

Inside Subprime: June 27, 2018

By Lindsay Frankel

After a long-stalled payday lending bill finally passed in the Ohio House, industry critics are now waiting for Senate changes to the regulations, as lenders insist that the current bill would shut down the industry.

Consumer advocates argue that the current bill is even an improvement over a similar bill in Colorado that has been considered exemplary by Pew Charitable Trusts. But payday lenders in Ohio who oppose House Bill 123 say the more restrictive regulations would harm the industry.

Daniel McCabe, president of Advance Pay USA, said the bill would shut down his stores, and argued that borrowers are savvy enough to make their own decisions without the protections. “My customers are smart people who understand the loan product and are aware of the cost,” he told the Columbus Dispatch.

Republican Senator Bill Coley also defended the industry, saying that “lenders are crying to us that they can’t do business” under the proposed bill.

But Bourke argued that the proposed law would be stronger and more flexible than the law in Colorado. “With due respect, I haven’t heard anybody give a single reason why HB 123 misses the mark,” he said. The bill would restrict annual interest rates to 28 percent and cap fees at $20 per month, with a total limit of 50 percent of the loan amount for all interest and fees. Under the bill, loan amounts greater than five percent of a customer’s monthly income would not be allowed.

The proposed law is intended to protect borrowers in Ohio from falling into insurmountable debt. Because of the high interest and fees typically associated with payday loans in Ohio, many borrowers are forced to take out new loans to pay off previous loans, leading to a cycle of debt that causes financial harm to low-income families. About 1 million Ohio residents have used these risky products at some point.

Bourke indicated that, under the current proposal, a $500 loan would cost a total of $750 to pay off within six months. An alternative proposal from Republican Senator Matt Huffman would require the borrower to pay as much as $1,135 on a loan of the same amount. While lenders argued that Huffman’s ideas were reasonable compromises, Bourke said that Huffman’s proposal was a way to avoid true reform.

For example, Huffman suggested an option of six zero-interest payments on a payday loan, but Bourke said this wouldn’t necessarily make loan repayment more affordable for low-income borrowers. He also noted that lenders discouraged the use of these payment plans in states with similar options. Huffman also proposed that Ohio establish a database to ensure that a borrower can’t take out more than $2,500 from payday lenders at once, but Bourke said this would not protect borrowers from high fees or give them reasonable time to repay their debt.

Bourke agreed with Huffman’s idea that lenders should disclose other options to borrowers as an aspect of reform but noted that this would not solve the problem entirely. People with bad credit in Ohio should be aware of available counseling services, along with other options for borrowing, but the law should also protect borrowers from exorbitant interest and fees associated with payday loans.

To learn more about payday lending in Ohio, check out these related pages and articles from OppLoans:

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