Payday lenders face law’s effects

By HOLLY SCHOENSTEIN

Payday lenders search for alternate products or plan to close their doors forever.

YOUNGSTOWN — Some local payday lenders are left in a panic after recently passed legislation put restrictions on the way they do business in Ohio.

Gov. Ted Strickland signed House Bill 545 on Monday, and now some lenders are wondering if they will be able to stay in business.

The loans usually have a duration of a few weeks to a couple months.

The bill capped the interest rate that lenders can charge for loans at 28 percent and prohibited them from adding other fees.

Industry critics say payday loans now carry an annual percentage rate of nearly 400 percent.

To make up for anticipated lost revenues, some lenders are searching for other products.

“It’s devastating because we’re going to lose a lot of our business,” said Mike Dohar, owner of four Midwest Money Center locations in Youngstown, which employs five full-time and three part-time workers.

“We’re going to give it a try. I have three months to do something,” he added. “I hope down the road they [politicians] will find that this bill is flawed and hope somebody will change it.”

Midwest Money Center offers check-cashing and bill payment services. About 5 percent of his customers use the payment advance service, he said.

“Under this bill, we won’t be loaning money,” Dohar said. “Under the current law it would take seven loans to make up one bad loan, but under the new legislation it would take 100 loans to make up one bad loan.”

He plans to talk to a lawyer about his options.

Frank Sinkovich, a partner in Abe’s Cash Advance, 4605 Market St., Boardman, does not see any way for his business, which offers loan services but not check cashing, can remain open.

“It’s something we’ve been looking at since they introduced legislation,” he said. “It appeared that it was inevitably going to pass. There’s no way we can stay open.”

Sinkovich declined to disclose his store’s closing date for fear it will further affect his business.

Three weeks ago, his store on Canfield Road in the city’s Cornersburg area closed.

“It was a new store just getting off the ground, and with the legislation there was no sense in keeping it open, so we minimized our losses and closed the doors early,” he said.

His son and daughter worked at the new location and were laid off. His son now works at the Market Street store.

About 6,000 employees work in the payday-lending industry in Ohio.

While lenders are dealing with an uncertain future, activists are celebrating.

“We are thrilled beyond words,” said Thomas J. Allio, director of the Social Action Office at the Catholic Diocese of Cleveland. “What has been passed is landmark legislation of a historical nature. We believe we have model legislation that will soon be replicated by other states.”

Dohar said a better option would have been to implement ways to protect consumers, while leaving the interest rate the same.

But Allio believes the industry had ample time to propose alternate solutions as legislation was initially introduced in October 2007.

“The payday loan industry has no one to blame other than itself because they had nine months to morph into a different business model, and they were uncompromising and have placed themselves in the situation they find themselves,” Allio said.

hschoenstein@vindy.com