Payday lenders reaping what they have sowed

Here’s the takeaway from Ohio Gov. John Kasich’s signing of a bill that clamps down on the predatory payday-lending industry: You can fight city hall – and win.

It has long been an article of faith that John Q. Public has little chance of emerging victorious in a battle with government. Hence the phrase “You can’t fight city hall.”

But House Bill 123, passed by the Republican-controlled General Assembly and signed into law Monday by Republican Kasich, is a testament to citizen action.

The measure, which goes into effect in late October, will protect Ohioans when they are vulnerable financially.

The most important aspect of The Fairness in Lending Act is that it closes a loophole payday lenders have used to get around the 28 percent annual interest cap established by a 2008 law.

Ohio voters put their stamp of approval on the 28 percent rate when they rejected a ballot issue pushed by the payday industry to repeal the 2008 law.

However, the payday lenders found a way to circumvent that statute: They began making loans under the Mortgage Loan Act. As a result, they have continued to charge more than 500 percent interest and to demand repayment in one lump sum.

This breach of public trust triggered an uprising of religious, grass-roots and community-based organizations demanding action by the General Assembly.

Thus was born HB 123, but the bill languished in the House for 15 months because of former Speaker Cliff Rosenberger’s close ties to the payday-lending industry.

However, in May, Republican legislators – the Democratic minority was unwavering in its support for reining in payday lenders – were forced to act after Rosenberger became the target of an FBI investigation.

Travel overseas

The federal law-enforcement agency focused on Rosenberger’s travel overseas with payday-lending industry lobbyists. The speaker resigned, but denied that the ongoing FBI investigation had anything to do with his departure.

In early June, the House passed the measure on a 69-14 vote, and the Senate ultimately gave its approval with a 21-9 vote.

Payday lenders have only themselves to blame for the strict standards that now govern their industry. Had they listened to the voters of Ohio and adhered to the terms of the 2008 law, including the 28 percent interest rate cap, they would not now be scrambling to find a way out.

The industry has said it’s exploring various options, including a lawsuit challenging HB 123.

The measure puts an end to those free-wheeling days of taking advantage of borrowers in need.

Here are some of the provisions as detailed by Cleveland.com [the Plain Dealer]:

Loans will be limited to a maximum of $1,000.

The cost of the loan – fees and interest – will be capped at 60 percent of the original principal.

A loan period of less than 90 days will be prohibited unless the monthly payment is no more than 7 percent of a borrower’s monthly net income or 6 percent of gross income.

Borrowers will be prohibited from carrying more than a $2,500 outstanding principal across several loans. Payday lenders would have to make their best effort to check their commonly available data to figure out where else people might have loans. The bill also authorizes the state to create a database for lenders to consult.

Lenders will be allowed to charge a monthly maintenance fee that’s the lesser of 10 percent of the loan’s principal or $30.

Lenders will be required to provide consumers with a sample payment schedule based on affordability for loans that last longer than 90 days.

Harassing phone calls from lenders will be prohibited,

“This is a project that’s been almost 10 years in the making … ,” Rep. Michael Ashford, D-Toledo, one of the sponsors of HB 123, told the Toledo Blade.

Ashford noted the bill will have a positive financial impact on at least 1 million Ohioans “working behind the financial eight-ball from paycheck to paycheck.”

Therein lies the reason for House Bill 123. Ohioans working paycheck to paycheck need to be protected from predators.