A unanimous June 11 ruling by the Ohio Supreme Court allows payday lenders to operate under the state's Mortgage Loan Act instead of under the 2008 Short-Term Lender Act.
The decision sparked an outcry from consumer protection advocates, who say it will promote a cycle of debt among Ohio's most vulnerable residents. Diane Standaert, senior legislative counsel for the Center for Responsible Lending, called the ruling "a devastating blow to Ohioans" that will cost residents $209 million a year in fees.
The Short-Term Lender Act was enacted to curb payday loans. When challenged by payday lenders, voters upheld the law and supported an annual percentage rate cap of 28 percent for payday loans. Interest rates on these products often had topped 300 percent. The Supreme Court wrote, however, that "ambiguous language" in the older mortgage laws renders the higher-interest loans legal and the 2008 law moot.
The case that prompted the Supreme Court ruling involved a two-week, $500 loan bearing more than 235 percent interest. The lender, Cashland, sued the borrower for failure to repay when the loan came due two weeks later.