Ohio Bill to Limit Payday Lending Heads to Governor

By Alex Ebert

Legislation tightening regulation of Ohio payday lenders is heading to Republican Gov. John Kasich’s desk following a July 24 bipartisan vote in the state House.

The bill (H.B. 123) would close a loophole that allows Ohio’s 650 payday loan storefronts to escape regulation under Ohio’s Short-Term Loan Act.

Critics said the bill will halve the number of payday loan locations in the state because of restrictions on the amounts lenders can provide and consumer-friendly provisions that will make the short-term lending industry less profitable. Proponents said the bill is less stringent than one passed in Colorado in 2012, and that state still has a thriving industry.

More ‘Business Friendly’

The bill would set a maximum short-term loan of $1,000 and limit monthly payments on loans of 90 days or less to 6 percent of a borrower’s income.

The Senate, seeking to be more industry-friendly, relaxed a previous House version that would have limited 90-day-or-less loans to $500 and capped monthly payments at 5 percent of a borrower’s income. That bill was modeled on the current regulations in Colorado.

Payday lenders, for the past 10 years, have been allowed to register as mortgage lenders, then tack on fees that create annual percentage rates up to 591 percent, one of the highest rates in the country, according to the Pew Charitable Trusts.

“This bill as it’s amended from the Senate opens up the Short-Term Lending Act law and allows payday lender to be licensed as they actually are, payday lenders,” bill sponsor Rep. Kyle Koehler (R) said prior to passage.

Borrowers also would have the ability to rescind their loans within three business days, or could pay back the loans completely at any time, he said.

Critics said the legislature shouldn’t interfere with loans dictated by the market that poor people need in emergencies to cover expenses. A payday lending industry association in Ohio claims the bills could cut off credit to a million of the state’s poorest citizens.

“Can you imagine if we were to say tomorrow and pass a law, to say that all banks must give their customers three business days in which to put sufficient money in their account before the bank can charge a bad check charge on their account? I’m sure the banks would not appreciate such legislation,” Rep. Bill Seitz (R) said in floor debate. “After all, as they said in ‘The Godfather,’ we are not communists.”

Scandal Ties

The House and Senate votes come at a sensitive time for Republicans attempting to distance the party from a scandal that led to the resignation of House Speaker Cliff Rosenberger (R).

Rosenberger resigned in April after disclosure that the FBI was investigating possible campaign finance violations connected to the former speaker’s international travel, which he took with payday lending lobbyists.

Local media reports have linked Rosenberger to a delay in considering H.B. 123, which languished in committee for more than a year without a hearing prior to his resignation. Ohio political pundits said passing the payday lending regulation would help mitigate the specter of scandal surrounding the party, and diminish negative messaging around the issue from Democrats ahead of November’s elections.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio, at aebert@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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