From the Statehouse 2008 No. 15
by Jennifer Garrison
May. 9, 2008
From the Statehouse: Payday Lending Reform
By Jennifer Garrison
Growing debt, coupled with the nation’s economic slowdown, is hitting families across the area and throughout Ohio hard. Many people use payday loans to pay their bills or to put food on their tables. However, the extremely high interest rates – in some cases, up to 391% annually – charged on these loans can trap residents in a vicious cycle that is difficult to escape.
As I travel throughout the district, I am struck by the significant problems resulting from the unfortunate practices of some payday lenders. Many Ohioans – often those with the fewest resources – become trapped in a cycle of debt, seemingly with no end in sight.
Ohio must ensure that payday loans are structured in such a way that they do not exploit those in need. Instead, the state must support lending practices that allow borrowers to build a future for themselves and their families.
The Ohio House of Representatives took action in this direction last week with the passage of House Bill 545, which protects consumers from the outrageous interest rates and collection practices of the payday lending industry.
Among other provisions, HB 545:
Caps annual percentage rates (APR) on payday loans at 28%.
Limits loan amounts to $500 or 25% of the consumer’s base monthly pay.
Sets the duration of loans to no less than 31 days, with an optional extended payment plan that adds 60 days to the term.
This bill also requires the Superintendent of Financial Institutions to create a statewide database of loans made by payday lenders. Lenders must use the database to determine if a borrower is eligible for a loan. A borrower is ineligible for a loan if he or she has an outstanding short term loan. The lender also cannot make a loan if the borrower paid off a loan that same day.
Further, the bill states the database is not a public record because it contains personal financial information of borrowers. This database operator will delete the borrower information on a regular basis.
This bill also prohibits the lender from accepting title to a vehicle, real property, physical assets, or other collateral as security for the obligation.
There was extensive debate about three different proposals that my colleagues – Representatives Robert Hagan, Matt Lundy, and Tyrone Yates – offered to the legislature.
This fourth proposal recently emerged with that 28-percent rate cap. I believe it is a critical piece of consumer protection. I voted “yes.” The measure passed 69-26, and I am very happy my colleagues stood by Ohioans and voted for these important consumer protections.
I also recognize the need for viable options for short-term financial assistance to protect people in tough financial situations. Ohio’s leaders will now work with banks, credit unions, churches, and other organizations to encourage them to step up and offer reasonable short-term loans. Meeting that responsibility will help people fill their financial gaps without having others take advantage of them in vulnerable situations.
House Bill 545 is supported by Governor Strickland and now moves to the Ohio Senate for its consideration.
You can reach Jennifer Garrison at her Columbus office at (614) 644-8728 or in the district at 373-2414 or by e-mail at jennifer@jennifergarrison.com. Her Web site is Riffe Center | 77 South High Street | Columbus Ohio 43215-6111 | (800) 282-0253 | District93@ohr.state.oh.us
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