Ohio Governor John Kasich Monday signed in law new strict restrictions on small dollar loans. It will take at least 270 days for approved lenders to be required to comply with the limitations of the new law. The new law will eliminate motor vehicle title loans and payday loans in Ohio and will also lead to a dramatic reduction in unsecured installment loans in the state.
The new law prohibits loans facilitated by credit service organizations (CSOs) where: (1) the loan amount is less than $ 5,000; (2) the term is less than one year; and / or (3) the annual percentage rate (APR) exceeds 28%. Currently, virtually all low-cost, high-cost loans in Ohio are made under the CSO model.
Under the new law, companies currently operating as CSOs can instead obtain short-term loan licenses and offer a new type of low installment loan, subject to a number of restrictions and restrictions. ‘requirements. Maximum APRs on new loans depend on the amount and term of the loan. Based on an initial analysis by attorneys at Ballard Spahr’s consumer financial services group, the table below shows the approximate APRs of these new Ohio loans, when paid in bi-monthly installments, for loan amounts and number of payments indicated:
|
Ready Amount |
Maximum APR 7 bi-weekly payments |
Maximum APR 26 bi-weekly payments |
|
$ 300 |
226% |
100% |
|
$ 500 |
162% |
100% |
|
$ 1,000 |
102% |
91% |
These APRs are well below the “typical” APRs for small loans in Ohio.
New Ohio loans must be $ 1,000 or less and generally must be payable in substantially equal installments over a term of 91 days to one year. Interest should be pre-calculated at a rate of 28% per annum or less. With regard to the financial charges under Regulation Z, in addition to the pre-calculated interest up to 28% APR, the lender may charge, on new loans, but not on refinancings: (1) a monthly maintenance fee equal 10% of the amount financed or $ 30, whichever is less; (2) a 2% origination fee on loans of $ 500 or more; and (3) a charge of $ 10 to cash a check for the loan proceeds. These fees and interest are limited to 60% of the amount financed over the term of the loan. The calculation of monthly maintenance fees is somewhat uncertain for loans not payable in monthly installments.
Lenders who provide the new type of Ohio loans are required to:
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recommend to the consumer the length of the loan based on the borrower’s monthly income verified at least by means of a pay stub or bank statement within the previous 45 days, although it is not clear how this requirement would apply to a licensee who does not offer variable loan terms;
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grant a right of termination of three working days;
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provide discounts pro rata to finance charges for prepayments in their entirety, with the discount based on the number of days the new Ohio loan was outstanding and the length of time originally scheduled; and
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make specified disclosures, including a questionable factual statement that banks, credit unions and other financial institutions “may be able to offer you a similar loan at a lower cost”.
Lenders making new Ohio loans should not:
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take a title or vehicle registration as a guarantee;
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make several new Ohio loans (with affiliates and employees) to the same borrower at the same time;
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charge a monthly maintenance fee;
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allow the total outstanding amounts of all lenders on new Ohio loans, as certified by the borrower, to exceed $ 2,500 at any time;
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expect an acceleration sooner than 10 days after a missed payment;
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providing incentives for repeat business; or
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attempted collection from a borrower’s account after two consecutive unsuccessful payment attempts, in the absence of a new post-failure written authorization from the borrower.
In addition, the permitted purposes for which a licensee can contact a borrower would be severely limited. Indeed, read literally, the bill would prevent a licensee from seeking refinancing or a new business after paying off an existing borrower on one of Ohio’s new loans. The constitutionality of these new First Amendment communication limits strikes us as highly questionable. Worse yet, the substantial limits on new Ohio loans seem too severe to us.
