Ohio Senate Passes Payday Lending Bill Opposed by Industry

By Alex Ebert

The Ohio Senate passed a payday lending regulation bill July 10 that’s less restrictive than one passed by the House, but short-term lenders said its provisions would still devastate the industry.

The bill (H.B. 123) would close a loophole in state law which doesn’t require Ohio’s 650 payday loan storefronts to register as short-term lenders. Ohio payday loans have an average annual percentage rate of 591percent, one of the highest rates in the country, according to the Pew Charitable Trusts.

The Senate proposal is a less stringent version of a bill passed June 7 by the Ohio House. The Senate bill would set a maximum short-term loan of $1,000 — compared with a $500 limit in the House bill — and limit monthly payments on loans of 90 days or less to 6 percent of a borrower’s income, compared with 5 percent in the House bill.

The vote means the House will get a chance to vote on the Senate bill when it returns from summer recess in September.

‘Puts Me Out of Business’

The compromises won over enough Republicans in the center-right Ohio Senate to pass 21-9. But payday lenders said the Senate bill’s requirements would force them to close as the interest they can charge gets capped at 28 percent and loans are capped at $1,000.

“This bill puts me out of business,” Cheney Pruett, the CEO and founder of CashMax, which operates 58 locations in Ohio, said July 10 during committee testimony. “The profits we earn are reasonable, even low in comparison to retail standards.”

For roughly half an hour, Pruett walked a committee through an audited financial statement of his stores and estimates for revenue under a possible H.B. 123 regime. Weighted APR for his loans would go from 301 percent to around 116, and his business’s net margin would shrink from about 6.6 percent to minus 8 percent, he said.

Losing the ability to demand collateral will also drastically limit the loans and close locations, Ted Saunders, president of the Ohio Consumer Lenders Association and chairman and CEO of Community Choice Financial Inc. said July 10.

“There’s not enough fees in the world to overcome people not paying me back,” he said. “The reality is, a couple hundred thousand people walked through our doors last year, and a lot more people have good outcomes than bad.”

The Ohio Consumer Lenders Association previously said the proposal could cut off credit for 1 million Ohioans who take short-term loans. But proponents said the measure will only close poorly performing lenders and will save $75 million, based on how markets have reacted in Colorado since regulations were enacted there in 2012.

‘Model’ for the Country

H.B. 123 takes a fair tack between pro-consumer provisions enacted in Colorado and more lender-friendly provisions that will allow for greater profits, proponents said.

“I grew up here, I was born here. I don’t want Ohio to have a typical payday lending law. I want it to have the best,” Nick Bourke, director of consumer finance with the Pew Charitable Trusts, a driving force behind the bill, said in July 10 testimony. He called the bill a “good balance” and said the law was less stringent than the legislation he helped push in Colorado in 2012, which has a maximum loan size of $500 and a minimum loan duration of six months.

Although several Republicans, such as Sen. Bill Coley, said the measure would reduce access to credit markets for the poor and didn’t help those in poverty, others said the state shouldn’t let “perfect” get in the way of “good.”

“The end result is an improvement on Ohio law,” Republican Sen. Dave Burke said in July 10 testimony. “It’s important because when you’re trapped in poverty, a 30-day loan followed by another 30-day loan followed by another 30-day loan is more expensive than a 90-day loan when you factor in interest and fees.”

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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