New Payday Lender Rules From CFPB May Not Affect Ohio
New payday lending rules from the federal Consumer Financial Protection Bureau are meant to keep borrowers out of a debt cycle, where with each repayment they have to take out a new loan.
Normally, a loan from a payday lender has to be paid in full in a short period of time. But, thanks to a loophole in 2008 legislation in Ohio, payday lenders in the state operate differently.
“And that’s why they can charge interest rates in excess of 400 and 500 percent and it’s also why they can evade the federal protections," says researcher Alex Horowitz of the Pew Charitable Trusts.
The loophole is in the 2008 Short Term Loan Act, which set the maximum interest rate on these loans at 28 percent. But payday lenders in Ohio were allowed to issue loans as other types of companies, free of the interest limit. Horowitz also says the new rules mostly apply to loans repaid within 45 days.
“In Ohio, lenders are already issuing loans with terms longer than 45 days and they’re likely to move entirely in that direction once the rule takes effect," says Horowitz.
He says that's how borrowers in Ohio end up with such high repayment costs. According to a 2016 study by Pew, the typical yearly interest rate on a payday loan in Ohio is 591 percent. The new federal rules take effect in 2019.