Although Ohio voters supported a measure to reduce payday loan maximum Annual Percentage Rates to 28%, the payday loan industry is still going strong in Ohio.
Could it be that the VOTERS in Ohio are not the payday loan CONSUMERS?
Legislators, regulators and so-called “consumer protectionists” cannot legislate DEMAND for payday loan type products away. Consumers have always needed access to small, short-term, non-collateralized loans. And in today’s economy the need for payday loan type products is even greater!
In 2008, the Ohio state legislature voted to rescind the 12-year-old law that exempted payday lenders from the state’s usury laws — a vote Ohioans supported 2 to 1.
HB 545 was supposed to help consumers by creating a Short-Term Loan Act that gave borrowers at least a month to pay off loans. Additionally, the new law was supposed to drive down the costs.
Instead, many payday loan operators chose to close their stores and leave the state. Those that remain explored alternative approaches and as a result, are prospering due to less competition and creative tactics allowing them to remain in business.
The Short-Term Loan Act specifically capped the APR at 28 percent. As a result, payday loan lenders switched their licenses so they could offer payday clones under two parallel lending statutes, the Small Loan Act or the Mortgage Lending Act.
By adjusting the loan amount to just above $500, payday loan lenders double the loan origination fees from $15 to $30. The Small Loan and Mortgage Lending acts allow the fees on top of the 28 percent interest, something the new law doesn’t permit.
Last year, payday stores gave loans to customers as cash or an ACH into their bank account, but this year lenders present loans in the form of checks or money orders, which they then charge additional fees to cash.
As an example, when a payday loan was transacted previous to HB545 a payday loan customer paid $575 to receive $500 in cash.
Under the new HB545 licensing scheme with the check cashing fees added, customers pay the same $575 to walk out the door with $500 in cash.
Ohio lender CheckSmart Chief Executive Ted Saunders says that technically CheckSmart makes less on loans because customers may choose to cash their money orders elsewhere. Saunders said CheckSmart gives loan customers a discount on check cashing and ensures that customers don’t spend more now for loans than they did last year. For the borrowers who deposit or cash their checks at their own bank, their real cost for a two-week $400 loan is under $30, which is less than the $60 paid by them under the former payday loan law and less, according to the FDIC, than the cost of an overdraft at an FDIC bank.
Prior to HB545, Lenders typically charged $15 for every $100 borrowed. Now prices are all over the map. We expect this situation to flatten out with time in Ohio.
A First American payday loan customer indicted he previously paid $75 for a $500 loan, First American charged him a total of $90 to borrow the same amount after the law changed.
More than one Ohio payday loan company has structured their check cashing and loan operations as two separate entities to justify the fees.
Attorney General Rich Cordray said his office has found payday clones with APR’s ranging from 128 to 700 percent.
“It’s very problematic,” he said. “What we have is overlapping statutes. . . . I think it very clearly circumvents the legislative intent.”
Ultimately, there is a lot of confusion in Ohio as a result of the the attempt by fools to legislate away a product that millions need, want, use and demand!