Ohio HB 486 | Limiting payday lending fees

Monday, February 11th, 2013 By

Closed store

After the first round of regulation was passed, more than 700 Ohio payday loan stores closed. Image from Flickr.

In 2008, Ohio passed a comprehensive payday lending reform law, HB 545. This law capped the interest rates lenders could charge for payday cash advances. Two years after this law went into effect, Representatives Jennifer Garrison, Gerald Stebelton and Matt Lundy are co-sponsoring HB 486, intended to further limit payday lenders.

The argument for more payday loan regulation through HB 486

Ohio’s HB 486 is being introduced under the auspice of more regulation for the payday lending industry. Many lawmakers are frustrated that payday lending stores are charging fees for services such as check cashing, loan origination and credit checks. When HB 545 passed in 2008, the goal was to reduce the cost of payday loans and more heavily regulate the industry. HB 486 is designed to tighten regulations even more. Legislators are concerned that payday lending customers are paying, in effect, $15 – $25 on each $100 borrowed for a two or four week period. Some borrowers misuse this service and end up digging themselves deeper into debt.

The argument against more regulation on payday loans

While the payday lending industry is not often well received or well liked, HB 486 attempts to punish payday lenders for following the law. When HB 545 was passed, interest rates on payday loans were capped at 28 percent annual interest — about that of most credit cards. However, over the two-week period of most payday loans, that interest rate does not provide the income lenders need to cover their costs. More than 700 payday lending stores closed, and 2,500 Ohio residents lost their jobs.

Ohio lenders operating under the Small Loans Act

In an attempt to remain open, Ohio payday lenders began operating under the Small Loans Act. The Small Loans Act allows lenders to charge fees for check cashing, credit checks and loan origination. The Small Loans Act also requires increased reporting, cash-on-hand and more regulated advertising. The payday lending stores in Ohio that began charging fees and operating under the Small Loans Act have followed the letter of the law, ensuring that they are providing a legal service. HB 486 seeks to end this practice.

The math of payday loans in Ohio

Many legislators are pointing to figures such as 391 percent APR to explain why they believe payday lenders need more regulation. However, neither HB 545 or HB 486 take into account that payday loans are intended as short-term financial solutions for between two and four weeks. Additionally, the only other option available to most payday loan customers are bank fees of $30 or more for bounced checks. Many payday loan customers have credit that does not qualify them for more traditional financial products.

So what do you think? Will HB 486 protect consumers? Or will HB 486 put Ohio payday lenders out of business?

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This post has 2 comments

  1. Tony Zhang says:

    I have to agree with Belinda. The bait & switch of the previous law wasn't right. It cost lenders a signifigant amount of money across the state to switch their business model only to shut the companies down completely.

    Also, the people who were taking out the loans are still going to need the money and where are they going to go now. The more lenders are legislated out the more customers are forced to go into less regulated sources. So Ohio lawmakers are saying their constituents need to go to loan sharks if they need money.

  2. Belinda says:

    I work for a "payday" lender, even though that is not the statute that we work under anymore and this will close all of our doors. What baffles me is that the legislators wanted us to switch to a different model; then when we did, it wasn't good enough. No matter what they all say, their ultimate goal is to shut our doors. How they think Ohio can afford to lose another 4500 jobs (guessing at the figure but probably pretty close) is beyond me.

    The service we offer is obviously needed or the marketplace would have closed our doors. People come to us because in the majority of cases, we are the cheaper alternative. A bounced check at your bank will cost you a minimum of $30, a utility reconnect is at least $60. We charge $45 to borrow $500. Allow the residents of Ohio to make their own choices. Every customer that walks through my door is smart enough to do this. We don't need more government "taking care" of us.

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