Bill seeks to cap rates on short-term loans

The Plain Dealer

COLUMBUS

A bipartisan bill introduced in the Ohio House seeks to cap interest on short-term loans at a 28 percent annual percentage rate.

The legislation also would prohibit charging monthly payments exceeding 5 percent of a borrower’s gross monthly income.

“These adjustments are long overdue,” Springfield Republican Rep. Kyle Koehler, a bill sponsor, said in a news release. “They will help our state’s hard-working consumers using a proven model that will still preserve access to credit in Ohio.”

Borrowers in Ohio on average pay an effective 591 percent annual percentage rate, according to research from the Pew Charitable Trusts. Borrowers often can’t repay the loan when it’s first due and must roll it over. The average cost to borrow $300 in Ohio is $68 per two-week pay period, or $680 over five months – the highest in the nation.

Short-term lenders say they offer a necessary service to underserved Ohioans and further regulations would force them to close.

“Any new legislation that imposes restrictive caps or onerous regulations will do nothing but harm the very consumers the legislation is designed to assist by eliminating credit options and exposing consumers to more expensive options such as unregulated off-shore internet lenders, overdrafts, utility shut off fees, or worse – illegal lending activities,” Pat Crowley, spokesman for the Ohio Consumer Lenders Association, said in a statement.

Payday reforms were announced in December, but put on hold after Republican Rep. Marlene Anielski decided against sponsoring the bill. Rep. Michael Ashford, a Toledo Democrat, worried the bill would go nowhere in the GOP-dominated General Assembly without a Republican co-sponsor.

A 2008 law capped payday loan annual percentage rates at 28 percent. But it has had little effect on average annual percentage rates because lenders registered to lend under other parts of state law. Republican leaders have since declined to take up the issue.

Ashford said the high interest rates make it impossible for families to repay loans.

“Unfortunately, many payday lenders are geared toward taking advantage of households that are living paycheck-to-paycheck,” Ashford said.