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Ohio Senate passes payday lending reforms

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COLUMBUS — Over the protests of the industry, the Ohio Senate on Tuesday approved a measure supporters said should reduce chances that lower-income borrowers will fall into the trap of never-ending payday loans they can’t afford.

“I support the bill not because it’s perfect but because it’s good,” said Sen. David Burke (R., Marysville), whose district stretches north to Sandusky Bay. He was among 21 bipartisan “yes” votes to nine “no” votes.

Until recently, the industry had decried the Colorado law on which the original Ohio House Bill 123 was modeled, saying Colorado drove small lenders from the market.

But on Tuesday, the industry made it clear it would now prefer Colorado’s law to what Ohio has placed before it — with even tougher restrictions on interest, fees, and borrower income qualifications.

“It is a supply-and-demand equation,” said Ted Saunders, chairman and CEO of the corporate parent of the 93-location Checksmart brand and president of the Ohio Consumer Lenders Association.

“And I can unequivocally say, based on what happened in Colorado, supply [of lenders] went down ... and the void was met with other, more expensive options,” he said.

He pointed to 2008 reforms enacted by the General Assembly that were overwhelmingly upheld by voters when the industry tried to repeal them at the ballot. Ultimately, lenders found a way around the restrictions by repackaging the loans under a different section of law.

He suggested the new bill could again lead to the “law of unintended consequences.”

“We have been operating for 10 years under the current law,” Sen. Scott Oelslager (R., North Canton), chairman of the Senate Finance Committee, told him. “You’ve said to me that you’re very concerned about the rates being so high. My question is why didn’t you speak up a long time ago to the legislature proactively to address that issue and not wait until these reform bills were introduced?”

Sen. Charleta Tavares (D., Columbus) took issue with Mr. Saunders’ suggestion that it would be better if Ohio capped loans so that monthly payments would be no more than 25 of the borrower’s gross monthly income, as allowed under Colorado’s law.

“These folks are trapped, and taking more of their paycheck is not going to help them get out…,” Ms. Tavares said.

House Bill 123 would cap payments at 6 percent of gross monthly income or 7 percent of net income for loans of 90 days or less.

Among northwest Ohio’s delegation, Sen. Randy Gardner (R., Bowling Green) joined Mr. Burke in voting “yes,” while Sens. Robert McColley (R., Napoleon) and Matt Huffman (R., Lima) voted “no.” Sen. Edna Brown (D., Toledo) was absent.

“When you look at the income tables at what would qualify for some of these short-term loans…, in many of these occasions there’s no other viable alternative for these individuals to obtain credit…,” Mr. McColley said.

Sponsored by Reps. Kyle Koehler (R., Springfield) and Michael Ashford (D., Toledo), the bill would cap the life of a loan to one year, limit the amount to $1,000, and cap the interest rate at 28 percent.

It would limit the initial fee on that loan to 2 percent of any amount above $500, cap total fees collected at 60 percent of the principal over the life of the loan, and cap monthly maintenance fees to 10 percent of the outstanding principal or $30, whichever is less.

The non-profit Pew Charitable Trusts think tank has estimated that the cost of such loans in Ohio can reach 591 percent when fees and interest are extrapolated over a year.

The bill now returns to the House. A spokesman said Speaker Ryan Smith (R., Gallipolis) will review the bill with the House Republican caucus before deciding whether to interrupt the chamber’s summer recess to get the bill to Gov. John Kasich’s desk.

The prior speaker, Rep. Cliff Rosenberger (R., Clarksville), resigned earlier this year amid a FBI investigation into his international travel with payday lobbyists.

Contact Jim Provance at jprovance@theblade.com or 614-221-0496.

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