Ohio Senate Passes New Version of Payday Lending Legislation

Inside Subprime: July 16, 2018

By Lindsay Frankel

The Ohio Senate recently passed a new version of House Bill 123, which contains legislation that would tighten restrictions on payday lenders in Ohio. The House will need to review the bill before it is passed to Gov. John Kasich. Senators voted 21 to 9 for the bill, which would save payday loan borrowers an estimated $75 million per year.

While the Senate’s version of the bill is slightly less restrictive, the payday lending industry doesn’t support the new regulations. Lenders say the interest rate caps would put them out of business.

New Payday Lending Rules

The Senate’s version of the bill, dubbed the Fairness in Lending Act, contains several changes and additions to the version the House passed in June. The maximum loan amount people could borrow would be $1,000, instead of the $500 limit in the House version of the bill. The fees and interest associated with a loan could not exceed 60 percent of the loan’s principal amount, a slight increase from the House version. Maintenance fees would be limited to 10 percent of the loan’s principal or $30, whichever was less. The House version specified 5 percent or $20 as the maximum allowable monthly maintenance fee.

Another major change was that the monthly payment on a loan could not exceed 6 percent of the borrower’s gross monthly income for loans under 90 days. The House version specified that the monthly payment not exceed 5 percent of the borrower’s gross income, without any rules about lengths of time.

The bill also featured several additions that would protect borrowers. For example, borrowers would not be allowed to take out more than $2,500 in payday loans at one time. The bill would also authorize the state to establish a database that lenders could use to verify this information. While the House version did not specify fixed lengths for payday loans, the Senate version would allow a maximum term of 12 months. Furthermore, borrowers would have 72 hours to revoke their decision and return the money without incurring any fees. The House version only allowed 24 hours for borrowers to change their minds.

The interest rate cap would stay at 28 percent. The bill would also forbid lenders from making harassing phone calls and would require loan information to be provided in writing in addition to oral explanation.

The Industry’s Reaction

Ted Saunders, a payday lending industry CEO, said he would be amenable to working with legislators on a version of the bill he would be able to support. “But in its current form I can’t support it simply because I can’t operate under it,” he said, claiming that the new bill would cause his stores to close.

But Senator Scott Oelslager, the committee’s chair, said that industry leaders have had 10 years to come forward and take a more proactive role. Instead, when the legislature capped interest rates in 2008, lenders chose to register under a different part of Ohio law to avoid the restrictions. As a result, payday loans in Ohio have the highest average annual interest rates in the country, according to Pew Charitable Trusts.

The Senate version of H.B. 123 was modeled after the law in Colorado, which has been considered exemplary by consumer advocates. The state has several protections in place for borrowers, but lenders are still able to operate.

If passed, the bill would protect the estimated 1 in 10 Ohioans who use payday loans from getting trapped in an insurmountable cycle of debt, as is common for many low-income borrowers. In the meantime, people who use payday loans should be aware of the high interest rates and fees imposed on these products and seek alternatives wherever possible.

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

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