Ohio Payday Loan Laws & Regulations
The payday loan industry will always have to deal with regulations and Government Oversight. We know this is the case more than ever here in Ohio. Over the past decade, we’ve seen new rules come on board. It’s ideal to offer loans with low rates and fees, but that’s not always possible. Most politicians and consumers don’t see how much fraud companies deal with regarding payday lending and car title loan applications.
Many lenders have software to check for fraud and theft. These underwriting tools can detect fraudulent applications. But there are always those that slip through. Many of these payday and vehicle equity loans will never be paid off because they were issued with little hope of repayment. Another reason for high rates is that many consumers can’t get a payday loan through traditional means. Most of these applicants have bad credit and other issues that cause problems during underwriting. It’s long been known that a large number of payday loans and installment loans end up in default. Often, the direct lender needs to write off the loan when it becomes delinquent.
New Payday Loan Lending Laws For Ohio
A few years back, Regulators implemented a project to curb interest rate increases among payday loan companies in Ohio. They passed the Ohio Short Term Lender Law. This legislation aimed to cap loan amounts, payment duration, and interest rates. The STLA was successful as it led to increased oversight of the payday loan industry. But we’ve seen many payday lending and car title loan companies as many small pawnshops and businesses had to either register as a lender or shut down. Most companies that funded loans in Ohio and shut down had a physical storefront operation.
One way Ohio payday loan companies got around the STLA was to sign up as direct mortgage lenders. By doing this, they could bypass the finance rate cap and add extra fees to the short term loan. We saw many payday loan companies in Ohio switch how their company was run as they became known as Credit Service Organizations. These CSOs are set up to help applications find a loan that fits their needs. With this arraignment, payday loan companies in Ohio know there is no cap or max on the fees they can charge with the loan.
Ohio Payday Loan Lending Loopholes and Exemptions
We have a situation where most payday loan lenders follow the books and regulations. But they’re using a loophole in the system that lets them profit on loans by charging fees instead of a higher interest rate. Should these companies be charging interest rates over one hundred percent? That’s debatable and is a conversation for another day. But we know it’s tough for a payday loan company to profit with interest rate caps. The fraud and consumer credit issues are still active with new applications. This leads to many needy applications being cut off from the necessary cash.
We recently saw a bipartisan group of Ohio legislatures roll out House Bill 123 to fix this payday loan loophole. The goal of this bill was to reign in the loophole created by the Ohio Short-Term Lender Law. Representatives in the Statehouse want to ensure credit is available for those with financial emergencies. The Fairness in Lending Act intends to roll out similar fees and caps as we saw with the legislation. For example, industry standards set a loan amount limit of $1,000. With the current setup, lenders acting as Credit Service Organizations could get around this limit, but that’s no longer true. Interest rates are also capped at 28% and can’t exceed 60% of the principal loan amount. Also, borrowers can’t take out loans with many lenders, and payoff terms have limits of 365 days.
Will future Ohio payday loan laws force lenders out of business?
Because of these new lending laws, it will likely be more challenging to qualify for an online payday loan in Ohio over the short term. Many of the larger companies that fund payday loans in Ohio are in the process of removing loan offers in the state. However, many still provide cash advances and car title loans under the new loan amounts and terms. They say the rate caps limit the amount of money they can make, and it’s hard to make a profit, but we will say how things end over time.
Some new direct advance lenders have begun to offer financing under these new online payday loan regulations. We have seen tech companies that offer installment loans pushing different lending options over the past few months. Many of these services claim they can profit with the new rate caps, so we’ll see how things turn out. Also, consider the lenders that will try to avoid the latest regulations in Ohio. These include companies out of state that don’t want to register as a direct lender with Ohio. We know of tribal lenders as well who claim these state laws don’t apply to them as they are sovereign entities. The bottom line is that it will take years to know the full effect of House Bill 123 on companies that offer payday loans. Rest assured, the staff and contributors to Payday Loans Ohio will continue to stay on top of all regulatory updates.