Ohio’s new payday lending law took effect Saturday, ending more than a decade of high-cost loans and quick credit for roughly 1 million Ohioans who find themselves in a financial pinch each year.
The new law is expected to save Ohioans $75 million annually in fees and interest, according to consumer advocates.
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The new law set April 27 as the date when payday lenders would be forced to change their business practices. So far, nine entities have been licensed under the new Fairness in Lending Act for more than 200 stores, according to the Ohio Department of Commerce.
“A new era for safer lending is underway. Lenders are already getting licenses to operate under the new law, meaning Ohioans who previously became caught in debt traps will instead have access to loans they can afford,” said the Rev. Carl Ruby of Central Christian Church in Springfield and a founding member of Ohioans for Payday Loan Reform.
Tonia Delong of Dayton isn’t so sure. She visited a Check ‘n Go on North Main Street on Wednesday looking for a cash advance.
“I’m on a fixed income,” said Delong. “There are times you need help and if you can’t get it there (at a payday lender), you’re not going to get it anywhere else, so you’re screwed.”
In the past, borrowers typically took out loans for $100 to $1,500 that had to be paid back within 30 days. Loans were secured with an auto title, post-dated check or automatic withdrawal. Interest and fees could exceed annual percentage rates of 400 percent.
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The new law prohibits auto-title loans, limits loans to $1,000 and 12-months, and restricts interest and fees to no more than 60 percent of the principal.
The changes were opposed by the payday lenders, who warned that the changes would force most of them out of business. Still the newly licensed entities include some familiar retail names such as Ace Cash Express and Advance America.
Several of the businesses contacted last week didn’t return requests for comment.
CheckSmart won’t offer any more loans but will continue to offer services such as bill payment, check cashing and money orders, according to a news release.
“In an effort to maintain thousands of jobs and serve hundreds of thousands of customers across the country, CheckSmart and its affiliate brands will continue to promote and deliver those existing financial services,” the statement says.
It will allow other lenders that comply with the new state law to issue loans out of its storefront, the news release says, while collecting on its outstanding loans in the coming months.
Wright-Patt Credit Union CEO Doug Fecher said credit unions — and more recently, banks — have started offering small loans to their members without requiring thorough credit checks. For example, WPCU offers members a loan of up to $500 with a $35 annual fee and 25 percent interest. Other financial institutions offer similar lines of credit for members.
“Over time I think there will be more and more available,” said Fecher, who testified in favor of the reforms.
The changes were made with the understanding that people with low incomes and bad credit need somewhere to turn in an emergency, he said.
“The whole point of the bill was to balance the interests of lenders and borrowers because everybody knew that chasing lenders out of the state is not good for anybody,” said Fecher, who’s also a member of the Dayton Daily News Community Advisory Board.
“The only thing that changed is they can’t make quite as much money as they made before,” he said of payday lenders. “It’s still a viable business to be in and those places aren’t going to go away.”
New lenders also are offering short term loans in Ohio. Possible Finance, led by Chief Executive Tony Huang, is a Seattle-based start-up that issues loans of up to $500 through a mobile platform in a handful of states.
State Rep. Kyle Koehler, R-Springfield, who sponsored House Bill 123, said he is on guard against attempts by the payday lending industry to try to “sabotage” the new law by lobbying to unravel it.
“We are watching it very closely to see what everyone is doing,” he said.
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Koehler and then state Rep. Michael Ashford, D-Toledo, introduced the measure in March 2017 but it stalled under the leadership of then House Speaker Cliff Rosenberger, R-Clarksville. Consumer advocates threatened to put the measure on the statewide ballot for Ohioans to decide.
In April 2018, it became a political hot potato when the Dayton Daily News broke the story that the FBI was investigating Rosenberger’s international trips that were underwritten in part by payday loan companies. Rosenberger resigned and a month later the FBI raided his home and storage unit.
Rosenberger said all his actions have been ethical and lawful. The FBI said last month that its investigation is ongoing.
House Bill 123 won approval in the House in June and the Senate in July and was signed into law by then Republican Gov. John Kasich.
Payday lending has a long history in Ohio.
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State law banned payday loans for more than 50 years but in 1995 the legislature approved the Pay Day Loan Act, which required state licensing and exempted payday lenders from the state’s usury laws.
By 2008, with complaints piling up, lawmakers passed bipartisan legislation to curb payday loan rates and cap them at 28 percent APR. The industry put the legislation up for a referendum and nearly 64 percent of voters decided to keep the new limits.
At the time, the referendum was thought to be a win for consumers. Instead, lenders sidestepped the law by getting licenses to offer loans under different sections of state law.
In the meantime, payday lenders poured hundreds of thousands dollars in political contributions in to campaign accounts. For example, since 2012, Lee Schear, owner of Schear Financial based in the Dayton area, contributed more than $540,000 to Ohio politicians and political parties.
Schear did not return messages from the Dayton Daily News seeking comment.
The new Fairness in Lending Act:
• Caps interest rates at 28 percent and allows a monthly maintenance fee of 10 percent of the loan amount, capped at $30.
• Borrowers get at least 90 days to repay unless the loans have installment payments limited to 7 percent of a borrower’s net income or 6 percent of their gross income.
• The cost of a loan (all fees and interest) cannot exceed 60 percent of the loan’s original principal, meaning a $500 loan can cost no more than $300.
• Loans are repayable in equal installments, creating a clear path out of debt.
• Loans up to $1,000 and 12 months are permitted.
Source: Ohioans for Payday Loan Reform