The amazing effect of new lending bill on the Ohio payday lenders

The amazing effect of new lending bill on the Ohio payday lenders

The Ohio Senate passed a payday lending bill on July 2018 which started a big controversy in the payday lending industry. That scenario was the outcome of the creation of House Bill 123, officially known as the Fairness in Lending Act, signed by Gov. John Kasich.

Senators voted 21 to 9 for a version of House Bill 123 which stated that Ohio payday lenders should follow a 28% interest rate cap for loans up to $1,000 for up to 12 months.

As per an analysis done by the Pew Charitable Trusts, about 12 million people spend more than $7 billion a year in payday loans and fees. On average, a borrower practically borrows eight loans of $375 each per year and pays $520 as interest. As per the Pew, five groups from the entire mass take out payday loans. They are African-Americans, renters, people with no four-year college degree, people earning below $40,000 per year, and individuals who are separated or divorced.

Payday lenders in Ohio claim that they’re serving 1 million low and middle-income people who have poor credit or lack bank accounts. These short-term lenders normally charge $15 to $20 on each $100 they lend. These payday loans are meant for short periods, so the annual percentage rate is quite high. The Pew Charitable Trusts has estimated that Ohio short-term payday loan comes with a 591% APR on an average. But the industry leaders say that the average APR is nearly 300%.

The new law is changing the whole scenario. It is going to make it cheaper to borrow payday loans from Ohio payday lenders. But the industry predicts that it could cause many short-term payday loan shops to close.

The Ohio House passed a different version of House Bill 123 in June. Under the Senate’s version of H.B. 123, which it calls the Fairness in Lending Act:

  • The maximum loan limit would be $1,000, up from $500 in the original version of the bill.
  • Terms of the loan would last only for 12 months maximum. The House’s bill had no fixed time frame for loans.
  • The cost of the loan like fees and interest, cannot exceed 60% of the loan’s original principal. Under the original bill, it was declared 50%.
  • The interest rate would be maximum 28%, this rate under the House version and in alignment with what voters upheld at the polls in 2008.
  • There would be no loans under 90 days unless the monthly payment is not more than 7% of a borrower’s monthly net income or 6% of his/her gross income. As per the original bill, the total monthly payment of a payday loan, including fees and interest, should not exceed 5% of the gross income or 6% of the net income.
  • Borrowers would be prohibited from carrying more than a $2,500 outstanding loan principal in total for several loans. There is no similar provision in the House version of the bill. Payday lenders in the substitute bill would have to check their commonly available data to calculate where else people might have loans. The substitute bill also authorizes the state to create a database for lenders to consult.
  • Lenders could charge a monthly maintenance fee. It would be less than 10% of the loan’s principal or $30. The original bill allowed a monthly maintenance fee of $20 or 5% of the first $400 borrowed, whichever was less.
  • For loans which are longer than 90 days, the lenders have to provide borrowers with a sample repayment schedule based on their affordability.
  • The Ohio payday lending bill provisions is prohibiting the use of “unfair, deceptive, or unconscionable means to collect or attempt to collect any claim.” The provisions also restrict:
    • The collection of or the attempt to collect any kind of interest or other charges, fees, or expenses incidental to the principal obligation unless such money is authorized by the agreement created by law. Lender can’t charge you any fee or penalty charges without the permission of the federal laws.
    • Any communication with a borrower whenever it is known that the consumer is represented by an attorney, or could be easily ascertained, unless the attorney fails to answer correspondence, return telephone calls or discuss the obligation in question, or unless the attorney consents to direct communication with the consumer. It means lenders can’t talk with the consumer without meeting the attorney (if any).
    • Placing a telephone call with a borrower or third party, at any place, including a place of employment, falsely informing the call as an urgent or an emergency.
    • Using vile or obscene language or language that is used to abuse the other party. Lender can’t use such abusive language or tone with the consumer.
    • Placing telephone calls without revealing the caller’s identity and with the mindset to annoy, harass, or threaten any person at the number called. Such actions may put the payday lender behind bars.
    • Collection of money in the form of long distance telephone tolls, text messaging fees or other charges will be illegal.
    • Engaging the borrower in telephone conversation continuously, or at unusual times, with the purpose to annoy, abuse, oppress or threaten will be punishable act.

    Provisions similar to (a), (bi), (d), (e), (f) and (g) are contained in the federal FDCPA (Fair Debt Collection Practices Act).

  • The lender must provide loan cost information verbally and in writing.
  • Borrowers would get 72 hours to change their minds about the loan policy and return the money, without paying any fees. The original version allowed for 24 hours to reconsider.

If we do not consider these rules, then Ohio was among the highest payday loan prices and the least regulated industry in the nation, as per Nick Bourke, director of consumer finance at the Pew Charitable Trusts.

Closing the loophole

The payday lending industry, especially small lenders, oppose both the House and Senate versions of H.B. 123. Lenders are expecting risk if they follow this bill and lend money to people with poor credit. They want to keep it like old school and set their rates the same as before to stay in business.

Cheney Pruett, CEO of CashMax, stated that the new, modified bill isn’t much different from the original, House version of the bill.

Members of the Ohio payday lending industry also claimed that they didn’t have enough time to discuss and raise their voice on the substitute bill as they didn’t have the time to review the bill. It is because they got the bill a few minutes before the committee started the hearing.

The law has a major effect on CNG Holdings Inc. – a financial services company based in the Kenwood area of Sycamore Township. This company is associated with payday loan company Check ’n Go as one of its primary businesses. Check ’n Go has 980 retail locations, 33 of which are in Ohio. So, they have a major effect on their business due to this bill.

Ohio took steps a decade ago in 2008 to lower the cost of short-term payday loans. But the new bill in 2018 imposed a big blow to the payday loan industry. That’s why when the 28% APR limit was enacted, payday loan companies started to find other ways to charge fees and make money.ohio payday loan bill
“This bill will help no one,” explained Sen. Bill Coley, R-Liberty Township. He was one of nine senators to vote against the changes. “The better alternative is to let us get into the room with the people who are on Main Street and lending money.”