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?