Columbus — The Ohio Supreme Court has sided with payday lenders using a section of state law to continue to offer high-interest, short-term loans despite limits OK’d by lawmakers several years ago.
In a unanimous decision June 11, justices determined there’s nothing blocking such lenders from offering single-installment, interest-bearing loans under a section of Ohio Revised Code separate from limits put into place in 2008.
“If the general assembly intended to preclude payday-style lending of any type except according to the requirements of the [Short-Term Lender Act], our determination that the legislation enacted in 2008 did not accomplish that intent will permit the general assembly to make necessary amendments to accomplish that goal now,” Justice Judith French wrote.
The ruling reversed an appeals court decision and returned the related case to the trial court for additional proceedings.
Among other limits, the Short-Term Lender Act capped the annual percentage rates charged on short-term loans. Backers at the time of its passage said it would stop the practice of high-interest, short-term loans being offered from storefronts across the state, often trapping consumers in debts they couldn’t repay.
But lenders sought out licenses under different sections of state law; rather than operating under the Short-Term Lender Act and the lending limits contained therein, companies instead registered under the state’s Mortgage Loan Act.
In fact, as of the end of last month, no short-term lenders were registered under the payday lending law, while 236 companies with a total of 1,430 locations were registered under the Mortgage Loan Act, according to Michael Duchesne, spokesman for the Ohio Department of Commerce.
The June 11 decision means payday lenders can continue to offer short-term loans, payable in a single installments, under the Mortgage Loan Act.
“… There is no language in the [Short-Term Lender Act] that requires a lender to be licensed under that act before making a payday-style loan,” French wrote. “Had the general assembly intended the STLA to be the sole authority for issuing payday-style loans, it could have defined ‘short-term loan’ more broadly.”
The decision focused solely on whether lenders can offer the short-term loans, not on whether the latter actually comply with state law.
“... We do not decide whether the customer agreement’s requirement of interest of 25 percent per annum... was permitted... or whether the 21 percent interest cap... applies,” French wrote. “The court of appeals did not address that issue, and appellant’s propositions of law do not implicate it here.”
One justice did question lawmakers’ action on the issue, noting that “something about the case doesn’t seem right.”
Justice Paul Pfeifer continued, “Not a single lender in Ohio is subject to the [payday lending law passed in 2008]. How is this possible? How can the general assembly set out to regulate a controversial industry and achieve absolutely nothing? Were the lobbyists smarter than the legislators? Did the legislative leaders realize that the bill was smoke and mirrors and would accomplish nothing?”
Marc Kovac is the Dix Capital Bureau Chief. Email him at firstname.lastname@example.org or on Twitter at OhioCapitalBlog.