Payday lenders in Ohio are searching for different ways to do business now that Ohio has enacted a strict new law which caps small, short term loan interest rates at below 30% APR. Consumer advocates are concerned that payday lenders are finding a way around the election results.
As with lenders in other States that capped payday loan interest rates, lenders in Ohio have looked into a number of different product types that would allow them to service their target demographic as well as make a profit.
A spokesperson for the Center for Responsible Lending (which lobbies against payday lending) stated:
“Whenever states reject payday lenders, they try to find other ways to keep trapped customers coming back to their stores to keep generating the same fee income off of them. They look to other laws, rename their product or rename a fee, saying it’s not a fee but just a service.”
Since May, six months before Election Day, the state of Ohio has received a large number of applications from payday lenders seeking to be approved to issue loans under the Ohio Mortgage Loan Act. There also have been 702 applications from lenders interested in offering loans under the Small Loan Act.
The Small Loan Act governs non-depository lenders who make loans up to $5,000 not secured by liens against real estate. Lenders can calculate interest by charging a maximum 25 percent on the entire loan amount or 28 percent on the first $1,000 and 22 percent on the remainder of the loan up to $5,000.
The Ohio Mortgage Loan Act governs lenders who make unsecured loans and loans secured by real estate or other personal property. The maximum rate is 25 percent with no loan amount limit.
But both of those laws allow lenders to charge origination fees that would increase the annual percentage rate.
The bottom line is that customers need access to short term loans, and lenders need to be able to make a reasonable profit. Market creativity will likely make sure that both objectives are met in Ohio.
