Lending Fairness for Ohio Consumers
A Guest Column by State Senator Jay Hottinger
July 27, 2018
Regardless of our incomes, most Ohioans can relate to being short on cash, needing a loan, or having unanticipated expenses. Some months can be harder than others to pay bills. Your car may break down. The refrigerator suddenly decides to quit working and you’re forced to buy a new one.
Over the years, Ohio has seen an increased number of payday lending businesses. These are business that offer consumers small, short-term loans. People often visit these businesses for situations such as those described above.
Many Ohioans have good credit, sound finances and steady jobs. If a financial need arises or they need to take out a loan for a large purchase, they can work with a bank, knowing that the financial institution and the loan are governed by pages of laws to protect the consumer.
On the other hand, some Ohioans have poor credit and struggle financially. They may choose to walk into a payday lending store in order to obtain quick cash through a short-term loan. These loans typically come with high interest rates and fees. While this may be a quick solution to a financial dilemma, it can cause further financial hardship in the long run for those who can’t make ends meet and rely on this type of loan repeatedly.
Payday loans in Ohio are some of the most expensive in the nation with fees and interest rates significantly higher than neighboring states. Ohioans voted in 2008 to reform lending practices and regulations, but a loophole in the law allowed lenders to avoid capped interest rates.
For these reasons, payday lending and consumer protection have been at the forefront of discussions lately at the Statehouse. Earlier this month, the Ohio Senate wrapped up work on substitute House Bill 123, the “Fairness in Lending Act”.
House Bill 123 went through extensive hearings and testimony from many witnesses. In the end, I believe we found a fair compromise that ensures short-term loans are available and affordable for those who need them, while also protecting Ohioans from predatory lending practices.
The Fairness in Lending Act will limit short-term payday loans to a maximum of 12 months and $1,000. Loans will not be permitted for less than 90 days unless the monthly payment is less than 7% of the borrower's verified net monthly income or 6% of their monthly gross income, whichever is greater.
Under the new guidelines, monthly maintenance fees are to be the lesser of 10% of the loan amount or $30. Interest on loans is not to exceed 28%. The total amount of fees and charges that can be collected on a short-term loan cannot exceed 60% of the original loan amount.
There are hard-working people who sometimes need extra cash and don’t qualify for bank loans. The short-term loan industry provides a service to these individuals and we don’t want to put them out of business. We just need to ensure that reasonable, fair guidelines are followed by the industry and consumers who need loans are protected. I am confident the Fairness in Lending Act, which now awaits the Governor's signature, will create a better balance in Ohio between lenders and consumers.