Ohio Ballot Board to consider short-term lending amendment

Inside Subprime: May 30, 2018

By Jacob Rogers

A proposed constitutional amendment limiting interest rates on payday loans in Ohio is preparing to take another step closer to the ballot.

On Tuesday, the state Ballot Board is going to review the “Short-Term Loan Consumer Protection Amendment,” which would cap short-term loan APRs at 28 percent, to make sure the language in the proposal represents a single issue. If approved, supporters will be allowed to begin gathering signatures needed to put the amendment in front of voters. The petition was certified by the Ohio Attorney General last week.

The amendment is being pushed by the Ohio Community Development Corporations Association, or CDC, which seeks to improve the quality of life in underserved neighborhoods and communities in the state.

Ohio resident who are paying close attention to payday loan laws, might be thinking to themselves, “Wait, weren’t interest rates on payday loans capped at 28 percent years ago?”

Technically, yes. But, of course, payday lenders found a loophole.

When the Ohio Short-Term Loan Act passed back in 2008, it capped interest rates a 28 percent and restricted loan amounts to $500. Payday lenders responded by registering as “mortgage lenders,” along with other services not subject to the new limits. This means the the real interest rate with closer to 591 percent. This is the result of loopholes and a 2014 Ohio Supreme Court decision that said payday lenders weren’t required to obtain licenses under the Short-Term Loan Act. Also, many lenders simply re-registered as Credit Service Organizations, another kind of payday loan broker.

The new amendment hopes to fill these loopholes, starting with a interest rate cap of 28 percent on all forms of short-term loans. Other consumer protections include:

  • Monthly payments limited to 5 percent of borrowers verified gross monthly income or 6 percent verified net monthly income
  • Lenders must warn that cost of the loan is higher than average and include a statement in contract informing borrower about complaints process
  • No financial penalties for prepaying a short-term loan in full prior to loan’s maturity date
  • Lenders may not require borrowers to waive legal rights to recourse, offer financial incentives for taking out more loans,  or even recommend that a borrower borrow more than what they requested.

According to the amendment, a short-term loan is defined as a loan lasting less than 180 days or for less than $4,000, indexed to inflation, except for (a) loans by banks, trust companies,  savings and loan companies, credit unions or their subsidiaries that are already regulated by federal or state law, and (b) interpersonal loans made to or for the benefit of a family or household member provided the interpersonal loan has an annual percentage rate under 28 percent.

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIn