Lawmakers in Ohio are poised to adopt new restrictions on high-cost consumer lending.
The state Senate passed a bill Tuesday that would eliminate a loophole in Ohio law that has enabled lenders to evade a strict interest rate cap enacted 10 years ago. The bipartisan measure was approved by a 21-9 vote.
The proposal includes provisions that are intended to preserve credit options for cash-strapped Ohioans, and its supporters called it a compromise. Still, it drew strong opposition from high-cost lenders.
The state Senate bill must still be reconciled with a similar measure that was passed last month by the Ohio House of Representatives.
For loans of less than 90 days, the Senate legislation would cap monthly payments at 6% of the borrower’s gross income or 7% of net income, according to a bill summary that was circulated Monday.
The bill would also cap the cost of small-dollar loans, including both fees and interest, at 60% of the original principal.
For a $600 loan with a 10-month term, borrowers could pay up to $360 in interest and fees. Under current Ohio law, a similar loan could cost more than twice as much, according to the Pew Charitable Trusts, which supports the Senate measure.
“This bill will no longer permit loans that take one-third of a borrower’s next paycheck, leaving the borrower with little choice but to take another loan immediately,” Nick Bourke, Pew’s director of consumer finance, said in written testimony Monday.
Bourke added that the bill is not perfect, but he called it a thoughtful and fair compromise.
But Ted Saunders, president of the Ohio Consumer Lenders Association, said in his written testimony that the bill does not provide a sustainable business model for the industry.
He said that under current law, some lenders charge annual percentage rates as high as 677%.
“Why not look at a reasonable compromise position? One that would still put Ohio in the middle of all regulated markets in the country,” Saunders said in his testimony.
In 2008, Ohio passed a law that capped APRs at 28%, but lenders got around those rules by registering as credit service organizations, which allowed them to charge expensive broker fees.
The bill passed by the Ohio House of Representatives is meant to close the decade-old loophole, and bears other similarities with the version passed Tuesday by the state Senate.
The House vote last month followed reports that former House Speaker Cliff Rosenberger, a Republican, was under investigation by the FBI after taking a foreign trip with payday lending lobbyists.