After law fails, new bill hopes to limit rates

Nine years after Ohio lawmakers and voters approved restrictions on what payday lenders can charge for shortterm loans, those fees are now the highest in the nation.

Ohio’s 2008 payday lending law has been ineffective. The question now is whether lawmakers are ready to address it.

Lenders avoided the law’s 28 percent loan interest rate cap by simply registering under different sections of state law that weren’t

designed for payday loans but allowed them to charge an average 591 percent annual interest rate.

Low- and middleincome Ohioans who borrow $300 from a payday lender pay, on average, $680 in interest and fees over a five-month period, the typical amount of time a borrower is in debt on what is supposed to be a two-week loan, according to research by The Pew Charitable Trusts.

Borrowers in Michigan, Indiana and Kentucky pay $425 to $539 for the same loan. Pennsylvania and West Virginia don’t allow payday loans.

In Colorado, which passed a payday lending law in 2010 that Pew officials would like to see replicated in Ohio, the fee is $172 for that $300 loan, an annual percentage rate of about 120 percent.

Colorado-style regulation is part of a new bipartisan bill that seeks to curtail fees charged and give Ohio borrowers more time to pay off the loans.

“Local community organizations know that when payday lenders start proliferating, that’s the sign of an unwell community,” said Nick Bourke, director of Pew’s small-dollar loans project.

Reps. Kyle Koehler, R-Springfield, and Michael Ashford, D-Toledo, are sponsoring House Bill 123. It would allow short-term lenders to charge a 28 percent interest rate plus a monthly 5 percent fee on the first $400 loaned — a $20 maximum rate. Required monthly payments could not exceed 5 percent of a borrower’s gross monthly income.

It also would bring payday lenders under the Short-Term Loan Act, instead of letting them operate as mortgage lenders or credit-service organizations.

Koehler said local faith leaders started talking to him about the issue more than a year ago.

“As state legislators, we need to look out for those who are hurting,” he said. “In this case, those who are hurting are going to payday lenders and are being taken advantage of.”

Unlike past payday discussions that focused on whether to regulate the industry into oblivion — a sticky debate that divides both Democrats and Republicans — Koehler said the bill would let the industry remain viable.

“There are people who need this kind of credit,” he said.

After Colorado passed its law in 2010, more than half of the state’s payday stores closed. But those that remained

saw business increase, Bourke said, and people who need a short-term loan still have plenty of access.

Some national payday lenders operating in Ohio also have stores in Colorado. Borrowing $300 for five months from Ace Cash Express, for example, costs an Ohio borrower $879, but $172 in Colorado, Bourke said.

“These companies are charging Ohioans five times more ... just because the law lets them,” Bourke said, estimating the Ohio bill would save borrowers $75 million a year.

Ohio has about 650 payday stores, including title lenders, which use car titles as collateral.

“They are set up so you can’t really pay off the loan,” Koehler said. “The idea that you have to pay it off in two weeks is causing most of the issues.”

Koehler said colleagues have repeatedly asked him: Didn’t we take care of this in 2008? The Short Term Loan Act created that year limits payday-loan interest rates to 28 percent, but zero payday lenders operate under that section of law.

Only nine of 99 current House members were in office in 2008.

“There is no sort of natural constituency that’s fighting to fix this problem, but there’s a very aggressive payday

loan lobby that’s fighting to keep their status,” Bourke said.

Since 2010, the payday industry has given more than $1.5 million to Ohio campaigns, mostly to Republicans. That includes $100,000 to a 2015 bipartisan legislative redistricting reform campaign, making it the biggest donor.

New restrictions “will do nothing but harm the very consumers the legislation is designed to assist by eliminating credit options and exposing consumers to more expensive options such as unregulated off-shore internet lenders, overdrafts, utility shut-off fees, or worse — illegal lending activities,” said Patrick Crawley, spokesman for the Ohio Consumer Lenders Association.

Speaker Cliff Rosenberger, R-Clarksville, said he is meeting with various parties to learn more about the need for the bill.

House Minority Leader Fred Strahorn, D-Dayton, added: “I’m all for reforming it to make it a good product for people, but there are too many under-banked and underserved people. We need to focus on making good financial products and not get carried away with putting people out of business.”