New law puts limits on payday-lending industry

By Marc Kovac

The new legislation shows that Ohio will not tolerate usury, the governor said.

COLUMBUS — With the strokes of seven pens and a few whoops from onlookers afterward, Gov. Ted Strickland made official Monday legislation limiting how payday lenders do business in the state.

“It is done, and it is now law,” Strickland said to an extended ovation by supporters after completing his signature on House Bill 545. He added, “Usury is one of the oldest of the sins, and this bill will demonstrate, I think, that Ohio will not tolerate usury. We will not tolerate individuals being exposed to exorbitant rates, which does contribute to this cycle of indebtedness.”

The bill was sponsored by Rep. Chris Widener, a Republican from Springfield who is chairman of the House committee that for months considered several separate bills regulating the payday industry.

The legislation caps the interest rates charged on payday loans at 28 percent (compared with nearly 400 percent now) and prohibits lenders from adding additional fees, interest or costs. Individuals can borrow up to $500 or 25 percent of their monthly pay.

The bill also limits borrowers to four payday loans per year, prohibits them from taking out a new loan to pay off an old one and requires consumer education courses for repeat borrowers.

With the governor’s signature, the legislation will take effect in 90 days.

Opponents have said the bill will devastate the payday loan industry, likely closing locations and costing 6,000-plus Ohioans their jobs. They also have questioned where people strapped for cash and facing emergencies will go for smaller, short-term loans.

But Strickland, House Speaker Jon Husted and Senate President Bill Harris, who spoke during a press conference in the governor’s Cabinet Room on Monday morning, countered those assertions, noting the cycle of debt and resulting economic hardships on consumers who get trapped in payday borrowing.

“We, as a nation, have a [debt] problem, and government shouldn’t encourage it — particularly when we’re having difficult times in our economy ...,” said Husted, a Republican from the Dayton area. “We shouldn’t leave open a door in the payday lending industry for people to keep getting trapped in these situations. It was time to act.”

Harris, a Republican from Ashland, said the legislation provides a means for those businesses that are serious about offering a service to Ohioans in need.

“There were lots of mom and pop payday lending places that did provide this service and were very careful to make sure that people did not continue the cycle of debt,” he said.

“Those are the people I think that will take advantage of the small loan provision and continue providing that service.”

Some credit unions and nonprofits already are offering alternative short-term loan products. Pat O’Bryan, who heads the Catholic Commission of Wayne, Ashland and Medina counties and who was among the initiators of the reform movement that led to HB 545, said the Empire Affiliates Credit Union has a short-term option that carries a 17 percent-18 percent rate.

“They have an alternative,” he said.

As for potential job losses from the closing of payday storefronts, Harris and Husted said lawmakers and the governor are working together, through initiatives such as the recently passed job stimulus package, to provide employment opportunities and potential economic growth in the state.

“We want to replace the jobs that are taking advantage of people with jobs that are helping people and are also able to generate an income for those people who are in business,” Harris said.