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Ohio payday loan law: What changes and what it means for you

Cincinnati Enquirer logo Cincinnati Enquirer 4/27/2019 Jackie Borchardt

One in 10 Ohioans has taken out a so-called "payday loan," traditionally where money is borrowed against a post-dated check.

But starting Saturday, the traditional payday loan will disappear from Ohio, thanks to a law passed last year intended to crack down on sky-high interest rates and sneaky fees.

It will be replaced with "short-term loans" that have a longer loan repayment period, a cap on interest and fees and limits on how much can be borrowed. The changes are estimated to save Ohioans $75 million a year.

House Bill 123 took effect in October, but businesses had 180 days to transition to the new rules and regulations. Payday and other small loan lenders said the law would shut down their businesses, but more than 200 locations have registered to operate under the new rules, including 15 in Cincinnati.

CheckSmart announced Thursday it would stop lending money but continue to offer check cashing and other services as well as collect payments on outstanding loans.

Another big Ohio payday lender, Cincinnati-based Axcess Financial, questioned whether it would be able to keep its Check 'n Go stores open under the new rules.

"Big government solutions rarely benefit consumer or commercial interests but we will see how the market responds to this solution," Doug Clark, president of Axcess Financial, said in a statement. "We believe large gaps remain in the state-regulated credit market and more credit challenged consumers will have the most difficult time moving forward with HB 123 products."

Bill sponsor Rep. Kyle Koehler, R-Springfield, said the new restrictions will make it hard for predatory lenders to take advantage of people. Koehler said an auto title loan store in Springfield was telling borrowers they needed to pay up because of the new law or lose their cards. The store gave Koehler's number to disgruntled customers.

“I find that despicable, to be real honest, that they would treat people this way," Koehler said. "When we fixed the law to protect people and they would treat them that way."

Here's a run-down of what has changed.

Loans will be capped

Only one loan can be taken out from a lender at a time. That's a big change from the old model, where borrowers would borrow more money to repay off the first loan and sometimes end up in a cycle of debt.

The law limits the amount borrowed to $2,500 from one or multiple lenders.

Borrowers have to sign a declaration they do not have more than $2,500 in short-term loans, and lenders have to make a concerted effort to check.

Loans will be more fair and transparent

The law caps loans at a 28% annual percentage rate and sets new limits on fees.

For loans less than 90 days, the monthly payment (including fees) cannot exceed 6 percent of the borrower's gross monthly income or 7 percent of net monthly income. For loans greater than 90 days but less than one year, fees and interest cannot exceed 60 percent of the initial loan amount.

That means, if you took out a $500 loan, you won't pay more than $300 in fees.

Monthly fees are capped to 10 percent of the original loan amount or $30, whichever is less. 

The law also closes a loophole lenders used to offer car title loans, where the borrower's vehicle registration is collateral for the loan.

Borrowers can change their minds and repay early

There's a three-day grace period where a borrower can cancel the loan and return the money without penalty.

If a loan is paid back early, the borrower would get back a prorated amount of fees and interest. 

There will be fewer places to get a short-term loan

Ohio had more than 650 payday and small loan lenders before the new law.

Only 10 companies have been licensed to offer loans under the new law at 217 locations:

  • Ace Cash Express, Inc.
  • Advance America/Cash Advance Centers of Ohio
  • All Kind Check Cashing, Inc./Cash Stop
  • Credit Fair, LLC
  • Fig Loans Texas, LLC
  • Great Lakes Specialty Finance Inc./Check 'n Go
  • Ohio Valley Cash Loans, Inc.
  • Possible Financial Inc./Possible Financial
  • RMPF Investments, LLC/1st Choice Financial
  • SCIL, Inc./Speedy Cash

Another 10 companies have applied for licenses from the Ohio Department of Commerce.

Old payday loan storefronts may remain open and offer services such as money orders, money transfers, prepaid cards, bill payment services, tax prep and check cashing.

 "Presently, one state-licensed lender is offering a loan in full compliance with the General Loan Law," the company said in a statement. "CheckSmart looks forward to other lenders bringing their products to this marketplace concept to provide consumers with options to fit their credit needs."

While there may be fewer brick-and-mortar stores offering loans, online lenders can operate under the law and a few have been licensed. One is Seattle-based Possible Finance, a mobile phone app. Possible Finance makes loans that are repaid in four installments over eight months. Loans are approved based on analysis of the borrower's bank account transactions.

"In the end, the prediction that all payday lenders would leave the state of Ohio has not come to fruition,” Koehler said. “In fact, we have people coming to Ohio.”

More: Ohio Court lets payday loans stand

More: Gov. Kasich signed payday lending law. What it might mean for your loan.

This article originally appeared on Cincinnati Enquirer: Ohio payday loan law: What changes and what it means for you

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