In 2008, lawmakers passed the Short Term Loan Act (STLA) to rein in the industry

The issue took months to resolve. Legal Aid negotiated a deal with small, extended payments so the mother could get her car back and return to work to pay off the loan that got her in trouble originally.

“This one relatively small loan caused a domino effect where she became homeless and her children weren’t in school because she lost her means for transportation,” Hollingsworth said. “If anything like this is going to change, it’s going to have to be at the legislative level.”

Invisible ink

The state passed the Pay Day Loan Act in 1995 requiring lenders to register with the state, but also exempting them from Ohio usury laws. The number of lenders surged from about 100 at the time to more than 1,500 a decade later.

The law effectively provided for max APRs of 28% and required loan terms to be no less than 31 days while also capping loan amounts to no more than 25% of a person’s monthly income. After a pushback from the lenders, the issue was brought to a statewide referendum, where 64% of voters approved the law.

Shortly afterward, lenders moved to register through the Ohio Mortgage Lending Act (MLA). Doing so allowed them to tack on fees that amount to the astronomical APRs.

In 2008, a municipal court judge found a Cashland store dodged the STLA in issuing an Elyria man a $500 loan that ultimately carried an APR of 245%. The store sued the man when he couldn’t repay the loan.

However, the business was registered under the MLA, so the lender appealed. An appellate court found that lenders couldn’t make loans under the MLA.

The case went all the way to the Ohio Supreme Court, which overturned the lower court by ruling the loophole lenders were exploiting was legitimate.

So, in effect, the state has a law governing payday lenders that might as well be written in invisible ink.

“As I understand it, there isn’t a single payday lender registered in Ohio under the STLA,” said Brian Laliberte, chair of the financial services litigation group for Tucker Ellis LLP. “No one is doing business under the STLA.”

Like weeds

The total number of short-term lenders can be difficult to track, but Pew’s December report shows Ohio has more than 650 payday loan storefronts in 76 counties. At least 66% are run by out-of-state companies.

Meanwhile, a report by the nonprofit Center for Responsible Lending estimated Ohio was home to 836 storefronts that provided either payday loans, auto title loans or both. All combined, the sector earned at least $502 million in just loan fees. That’s more than double the amount from 10 years prior, according to the study.

Nick Bourke, director of Pew’s consumer finance program, said the lenders are “clearly a drag on the local economy” because they drain millions from consumers’ pockets.

Pew suggests Ohio adopt a system like the one in Colorado where conventional two-week payday loans were replaced by six-month-installment loans with lower prices. There, the average $300 loan repaid over five months carried $172 in costs – as compared to the $680 in fees in Ohio. Bourke said research shows an industry claim that regulation would put those lenders out of business simply hasn’t come to pass there.

According to the Pew study, Bourke points out, credit access remains widely available there. Average loan payments consume only about 4% of a borrower’s next paycheck. And with a clear pathway out of debt, 75% of those loans in Colorado are repaid early.

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