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Payday Lending in Ohio Gets a Facelift

Payday lending in Ohio is about to change.  After political scandal and an FBI investigation, Ohio finally has a new payday lending law designed to close loopholes that existed before.  Richard Cordray, former head of the Consumer Financial Protection Bureau, is quoted as saying Ohio has the worst payday lending laws in the nation.   But it was not until the FBI raided Cliff Rosenberger’s home and storage unit (a la Paul Manafort) that the proposed bill to reform payday lending laws in Ohio saw the light of day.

What was the loophole before?

Payday lending reform in 2008 was supposed to cap annual interest rates as 28 percent.  See R.C. Chapter 1321.  So, what did payday lenders do?  They registered as mortgage lenders and credit service organizations instead.  They made the same loans, where consumers were supposed to pay relatively small fees of $15 per $100 loaned.  The consumers were supposed to repay the loan in two weeks.  But when consumers couldn’t repay those loans, on time, the repayment period was extended and more fees were added.  Consumers that obtained loans for $1,000 could eventually end up paying $1,600 after fees and interest.  The Center for Responsible Lending reports that this cycle of extensions and additional fees – or “churning” – accounts for nearly 75 percent of payday loan volume.   Even Last Week Tonight with John Oliver reported on the cyclical, never-ending nature of these loans.

Why the delay?

So, if these loans are so bad and the payday lenders weren’t shy about circumventing the interest rate cap, why didn’t anyone do anything?  Well, the answer to that is interesting.  Cliff Rosenberger used to be the Speaker of Ohio’s House of Representatives.  In March 2018, the FBI raided Rosenberger’s home and storage unit.  No one was really clear why that happened, but Rosenberger resigned shortly thereafter. 

The FBI then revealed that Rosenberger was being investigated for bribery and extortion.  Apparently, Rosenberger was pretty cozy with lobbyists for payday lenders who helped fund some international trips for Rosenberger, though the payday lenders say Rosenberger threatened them with the pending payday lending reform legislation.   Fast forward three months after Rosenberger resigned and the Ohio General Assembly passed the payday lending reform and Ohio Governor John Kasich signed the bill into law.

What happens now?

The new payday lending bill goes into effect on October 29, 2018.  Cleveland.com provided a nice summary of what the law changes.  In addition to the changes Cleveland.com noted, the bill also provides:

  • Loans that violate the new law are void.  The lender cannot collect or retain anything in connection with the loan.
  • Lenders must verify borrowers’ income.
  • Lenders cannot accept title or registration to a vehicle, real property, physical assets, or other collateral as security for the obligation.
  • Lenders cannot accelerate the balance of the loan after default unless they meet specific requirements. 

If you have an issue with a payday loan, contact us to see if we can help.

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