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Changes In Ohio Short-Term Lending Law Create New Loan Landscape

Closed payday lender Cash Loan
Debbie Holmes
The former pay day loan lender, Cash Loan on Car Titles on the East Broad Street 4000 block is now just a debt collector.

What once was a booming payday lending industry in Ohio has shrunk dramatically since the Short-Term Lender Law took effect in April.  Some companies have left the state, while others are changing their business model.

Cash Loans on Car Titles is just one of the signs that still hangs outside of a closed East Broad Street storefront in Whitehall on the far Eastside.

About half a dozen-payday and auto title lending locations, sit empty on Broad and Main Streets, and Hamilton Road. In late April, Ohio’s new payday lending law took effect.  It’s called the Short-Term Loan Act.  It replaces three other licensing laws that once covered a variety of payday lenders.

Now these businesses have to register under one set of rules.  The new law also forbids auto title loans.

“We have reason to believe there has been a significant decrease in short-term lending in Ohio post H.B 123,” says Matthew Walker, attorney with the Ohio Division of Financial Institutions within the Commerce Department.

“The licensing numbers now compared to for example the end of 2018, for example small act loan lenders or licensees went from 161 at the end of 2018, down to 30 today,” Walker says.

Since the law’s passage, even the statewide association for short-term lenders has disbanded.

Credit Debbie Holmes / WOSU

Under the Short-Term Loan Act, a borrower can take out a loan for up to $1,000.  They get up to a year to pay it back. Monthly installment payments are limited based on income and interest rates cannot go over 28%. Companies that issue loans over $1,000 fall under other laws and offer lower Annual Percentage Rates on longer-term loans.

“Ohio has now I think as a result of the Short-Term Loan Act has more consumer protections in place than it did previously,” Walker says.

In 2008, Ohio voters approved a 28% interest rate cap on short-term loans.  However, payday lenders used a loophole and applied for licenses under the Mortgage Lending Act.  That allowed them to charge higher interest rates and add more fees.  Some annual percentage rates could reach 600% or higher.

Walker says under the new rules, other lending license types have also dropped. Credit Service Organizations, or CSO’s, decreased from 51 to 24. Lenders had used CSO’s as a loan broker to add unlimited fees to a loan.

“We think there’s roughly 700 less CSO locations than there were at the end of 2018, Credit Service Organizations, so that was one of the license types where there was short-term lending occurring previously,” says Walker.

Credit Debbie Holmes
Ace Cash Express at 5206 E. Main Street in Columbus is licensed for short-term lending .

Walker says 19 companies currently hold licenses in Ohio for short-term lending with 238 locations.

One of them is Cincinnati-based Axcess Financial.  Executive John Rabenold says his company that operates Check ‘n Go has experienced a significant drop in business, though he would not be more specific.

“Government picked winners and losers,” Rabenold says. “You know on one hand, the law caused a lot of companies to close. And that’s why there are so few licenses that have been obtained under this new law.”

Nate Coffman is the executive director of Ohio CDC Association, a group of community development organizations that pushed for payday lending changes. He estimates Ohioans will save $75 million a year under the new law.

“We think that we hit the sweet spot in still allowing access to credit, but under what will be costs that are four times as less before reform, which is substantial to see that type of savings,” Coffman says.

It is too late though for 27-year old single mom Kateresa, who wishes she had understood more about the auto title loans that the new law bans. WOSU agreed not to use her last name to protect her privacy.  

When times got rough, she took out a loan for $800. She fell behind on the first payment and refinanced.  A month later, she lost her car.

“You don’t think about all the extra fees that you’ll have to pay back,” Kateresa says. “And you think 'well okay I need it right now so let’s just get it and I’ll worry about the rest later.'”

Later for Kateresa turned out to cost $3,000.  She did get her car back. 

As financial institutions learn more about the Short-Term Loan Act, the landscape changes even more.  Some banks are coming back into short-term lending. In addition, more online companies are joining the market.

The former lender, “Cash Loan on Car Titles” no longer loans money. It is now a debt collector.

Debbie Holmes has worked at WOSU News since 2009. She has hosted All Things Considered, since May 2021. Prior to that she was the host of Morning Edition and a reporter.