New Research Reveals Result of Old Law Governing Ohio Payday Loans

Inside Subprime: April 8, 2019

By Grace Austin

New academic research shows the effects of one state’s efforts to ban payday loans.

An economics paper by Stefanie R. Ramirez of the University of Idaho, published in the journal Empirical Economics in March 2019, looks into the effect of Ohio’s payday loans legislation.

More than 10 years ago, Ohio limited payday loan interest to 28 percent. The Short-Term Loan Law, enacted in November 2008, limits annual interest, effectively banning payday loans in the state.

Now, Ramirez says, while the legislation did succeed in its goal of banning payday loans, it led to cash-strapped consumers with poor credit looking elsewhere for a short-term, low-dollar loan. That included places like pawn shops, overdrafting at their banks or credit unions, and using direct deposit cash advances.

Ramirez used licensing records from 2006 to 2010 in Ohio to look at whether there were changes in other alternative financial services after the law was imposed.

Those alternative financial services included pawnbrokers, precious metals dealers who buy gold and silver from the public and second-mortgage lenders. These businesses are considered “alternative” because they provide unsecured loans that often require collateral or selling property for the loan, outside the mainstream financial service providers of banks or credit unions.

Data shows that alternative financial services licenses actually grew during the time that the 2008 payday loan law was enacted in Ohio. Ramirez’s paper indicates “the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.”


“Policymakers may have simply shifted operating firms from one industry to another, having no real effect on market conduct,” Ramirez writes.

As analysis from Quartz states, “Without eliminating the reasons why people might seek out payday loans, and giving them access to more secure borrowing options that they are presently excluded from, it’s hard to see a good alternative solution for would-be borrowers.”

Interestingly enough, since then Ohio has passed even stricter payday loans legislation into law. That 2018 legislation filled many of the loopholes that payday lenders were using to get around the decade-old law. Payday lenders in the state were “charging ridiculously high fees, issuing loans as checks, then charging high fees to cash the checks; operating under the Mortgage Loan Act,” said an advocacy leader to

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like Ohio, AkronCantonCincinnatiClevelandColumbusDaytonFremontLimaSpringfieldToledo and Youngstown