The Ohio General Assembly is considering legislation to keep payday lenders from trying to make up revenue shortfalls by hitting consumers with various fees.
The debate comes two years after state lawmakers passed legislation regulating the amount of interest payday lenders can charge for short-term loans. But since that bill became law, state Rep. Jennifer Garrison, D-Marietta, said, lenders have found ways to make up for the state-mandated drop in interest rates by levying other charges.
"They switched to using legislation from the state Mortgage Act and Small Loan Act, meant for long-term loans, to add more fees," such as a fee for cashing the customer's loan check, she told the Marietta Times.
That fee can run between 3% and 6% of the payday loan, on top of the loan finance fee, said Suzanne Gravette Acker of the Coalition on Homelessness and Housing in Ohio. "The finance charge for a $100 loan is $25.95," Acker said. "On a two-week payback, that's an APR of more than 600%."
Acker said the ability of lenders to charge such fees was not on the radar when the law was enacted. The new bill seeks to close those loopholes, Garrison said.
Before the law was enacted, payday lenders could charge interest rates on two-week loans that translated to as high as a 391% annual percentage rate. The law capped the APR they could charge at 28% and was upheld by voters after the lenders placed a referendum on the bill on a statewide ballot.
The new legislation would prohibit lenders licensed under all small-loan and mortgage-lending statutes from charging fees to cash the lender's loan check; limit origination and credit-check fees to no more than once in a 90-day period on loans of $1,000 or less; and prohibit fees for the lender to act as a credit service organization on behalf of the borrower.
Rep. Gerald Stebelton, R-Lancaster, a co-sponsor of the bill, said it is not intended to put payday lenders out of business. Stebelton said he believes the bill is a "reasonable way to help" keep consumers from being trapped in "a cycle of debt." He said that those who use payday lending bear some responsibility for the debt-cycle problem.