Ohio court allows payday loans
- Ohio Supreme Court allows payday loans to operate under state mortgage laws
- Judge Pfeifer asks if lobbyists are smarter than lawmakers
An Ohio Supreme Court ruling allowing payday lenders to operate under mortgage laws has outraged consumer protection advocates, who say the ruling fosters a cycle of debt for local residents. neediest of the state.
Wednesday’s unanimous decision allows payday lenders to operate under the Mortgages Act instead of the new Short-Term Lenders Act, which was enacted in 2008 to limit payday lending. This law, when challenged by payday lenders, was upheld by voters and capped the annual percentage rate on payday loans at 28%.
Interest rates on payday loans were notoriously high – often climbing well over 300%.
The Supreme Court wrote that due to the “ambiguous language” of old mortgage laws, short-term, high-interest loans are legal, rendering the 2008 law moot.
Judge Paul Pfeifer acknowledged that “something in the case does not seem right”. After the 2008 law was passed, he wrote, “A funny thing happened: nothing. It was as if the (short-term money lenders law) did not exist. Not a single lender in Ohio is subject to the law. How is it possible ? How can the General Assembly set out to regulate a controversial industry and achieve absolutely nothing? Were lobbyists smarter than legislators?
Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, doesn’t think so. He disagreed with the ruling, saying it allowed a heavy industry of lobbyists to exploit laws that were never meant to apply to their types of loans.
“They don’t do mortgages or installment loans or consumer loans,” Faith said. “It’s a lump sum loan, and two weeks later you have to pay it all back in one go with all the interest, all the fees.”
Faith said the loans hurt the most needy people in the state.
“Anyone who doesn’t have $500 today won’t have another $500 plus expenses in two weeks,” he said. “Once in a while there is an exception, but it’s rare.”
Patrick Crowley, director of the Ohio Consumer Lenders Association, said its members comply with all state laws and regulations.
“This was clearly an isolated case with very unusual circumstances,” he said of the case that prompted the Supreme Court’s decision, which involved a $500 loan. over two weeks granted to a man from Elyria who charged more than 235% interest. Rodney Scott failed to repay the loan when due two weeks later, and Cashland sued him.
Consumer protection advocates condemned the decision.
“The Court is telling the Legislature that it did not do the job that it set out to do and that the voters overwhelmingly approved,” Linda Cook, senior attorney at the Ohio Poverty Law Center, said in a statement. a statement. “Ohio consumers will remain vulnerable to these predatory loans that trap cash-strapped consumers in a cycle of debt until the Ohio Legislature steps in or Congress takes national action. .”
Diane Standaert, senior legislative counsel for the Center for Responsible Lending, called Wednesday’s decision a “devastating blow to the people of Ohio” that will cost residents $209 million a year in fees.
Crowley said canceling payday loans would force Ohioans to turn to unregulated internet loans that are more expensive, put borrowers’ private information at risk and are “often made by rogue offshore lenders.” “.
“The market has spoken loud and clear on this issue. Ohio residents want and need access to consumer loans,” he said. “Customers visit our stores because they have determined that consumer loans are a viable, less expensive alternative to bad checks, late fees or pawnbrokers.”