COLUMBUS — One of the nation’s strictest proposed crackdowns on payday lending cleared the Ohio House on Wednesday, backed by Republicans and Democrats who believed the protection of consumers would far outweigh job losses should the industry shut down.
The bill, which passed 68-26, slashes customer charges to a fraction of their current rates and limits borrowers to four short-term loans a year.
The bill was temporarily in jeopardy when Republicans attached a controversial proposal to ban Keno lottery machines but passed after they reconsidered.
The payday lending proposal now heads to the Senate for consideration.
Industry representatives say the proposal’s cap of 28 percent annual interest undoubtedly would put payday lenders out of business — a claim acknowledged by many of the lawmakers who supported the proposal.
“The high interest rate is the anchor that takes many Ohioans deeper into the sea of debt,” said Rep. Matt Lundy, a Democrat from Elyria.
Payday lenders generally charge about $15 for every $100 borrowed on a two-week loan, which would be the equivalent of a 391 percent annual interest rate. Under the 28 percent annual interest rate proposed, borrowers would owe just a couple of dollars for every $100 borrowed. The bill also would establish a minimum loan of 31 days — which can be extended another 60 days if a customer so desires.
Lenders said they agreed with some parts of the bill, including an effort to establish a statewide database to track the number of customers’ loans.
“All these ideas really don’t mean anything because a 28 percent APR will cause the industry to shut down,” Darryl Dever, chief lobbyist for the Ohio Financial Services Association, told a House committee that approved the bill earlier Wednesday. “You are driving people to an unregulated industry.”
Dever said customers would seek out loans over the Internet.
The proposed law would prevent Internet loan companies from having access to the courts to recover an unpaid debt, lawmakers said.
Lenders said some borrowers misuse their service and conceded that people get ensnared in a cycle of debt that keeps them coming back repeatedly for loans. But they argued that many other customers use the loans only once or twice to help themselves recover from an unforeseen event, such as a car breakdown. They said the bill would lead to a loss of 6,000 jobs in the state.
“I think today that a ‘yes’ vote would close down an avenue for people who have a need for short-term borrowing and who are very responsible with credit concerns and credit in their very own lives,” said Rep. David Daniels, a Greenfield Republican.
A University of North Carolina study on the impact of a shutdown in payday lending in that state found that the loss of the option did not greatly affect credit options available to consumers. Twice as many people surveyed said the absence of payday lending was a good thing as those who thought it was a bad thing.
The study showed people use multiple options when faced with a financial shortfall, including not paying a bill or paying it late, getting money from friends or family, bouncing checks and using a credit card advance.
Until Tuesday, when the more restrictive 28 percent interest rate was announced, the best hope of industry opponents after months of lobbying was a rate cap of 36 percent. That figure would have matched the toughest restrictions enacted in other states.
Before the sudden turnaround, a pending House bill had left the much higher current interest rates untouched.
Other provisions of the bill would prohibit lenders from charging loan initiation fees, which are usually a minimum of $15, and allow prosecution of violating lenders under a law designed to protect consumers from exploitation.
The attachment of the Keno lottery ban threatened to derail the bill because Gov. Ted Strickland has proposed the addition of Keno to help plug a projected budget deficit. Republicans proposing the Keno ban Wednesday said the lottery also hurts poor people, and felt that Strickland’s position on Keno was contradictory to his support of a crackdown on payday lending.