The Ohio Supreme Court last week handed a big win to the payday lending industry by ruling that a two-week loan with a 235% interest rate is legal. The ruling may have been clear, but what happens next isn’t. Ohio Public Radio's Karen Kasler explains.
In 2008, the number of payday lenders in Ohio had 15 times as many payday lenders as were in business in 1996, and there were more of those quick-loan stores in Ohio than the number of McDonald’s, Burger Kings and Wendy’s combined. That year, state lawmakers passed what was called the toughest crackdown on payday lenders in the nation. It put interest rate caps on those loans and repealed the check cashing law, replacing it with the Short Term Lender Act. Darryl Dever was a lobbyist for the payday loans industry back in 2008.
“I don’t think ‘stringent’ is the word. I think this bill, unequivocally, ends the industry in the state of Ohio.”
The law not only passed, but survived an attempt to get voters to repeal it. But the law didn’t end the industry. While several quick-loan stores did shut down, no payday lenders registered under that new Short Term Lender Act. They instead issued loans under the Mortgage Loan Act, which allows for loans that must be repaid in a single installment and a maximum annual interest rate of 25%. That’s not how it was supposed to work, says Bill Faith with the Ohio Coalition on Homelessness and Housing in Ohio.
“We all thought it was going to be a crackdown. I think the vast majority of the people in the legislature thought it was going to be a crackdown. And the fact that they hired good lawyers and figured out these crafty little weasly loopholes to try to get around the will of the voters and the law that was passed, we didn’t think that would stand.”
And a decision from the Ohio Supreme Court lets that stand. The court sided with a Cashland store in Elyria, where Rodney Scott borrowed $500 in December 2008. He was supposed to pay back $545.16 two weeks later, and the agreement he signed said the annual percentage rate of the loan was more than 235%, when all fees and finance charges were added in. He defaulted, and Cashland sued. The high court said since Cashland was lending under the Mortgage Loan Act, the single installment payment and interest rate plus fees were acceptable. And the court’s ruling also says the legislature must clarify what it intended for the law to do. But Faith says he’s not anticipating anything from lawmakers on this anytime soon, since they’re on a summer campaign break.
“Well, honestly, I don’t, not right now. Maybe they’ll take it up after they get back, but they’re – I wouldn’t expect action immediately, but I hope they do address this down the road now that the court has finally ruled on this case.”
The original sponsor of the 2008 bill, Sen. Chris Widener, did not return a call seeking comment. Cash America International, the parent company of Cashland, wrote in a statement that it’s pleased with the ruling on what it called the unambiguous language of the law and that the ruling – quoting here – “confirms that we offer legal, short-term credit options to Ohioans.” While the panic over the proliferation of payday lenders during the recession has dissipated, there are still concerns about that industry in Ohio. A Pew Charitable Trusts survey last year found 1 in 10 Ohioans had used payday loans in the last five years — the fourth-highest rate in the nation.
