Q: What Does House Bill 545 Do?

Issue 5

Frequently Asked Questions

Q: What does House Bill 545 do?

A: House Bill 545 reforms the current payday lending legislation to prevent people from getting trapped in a downward spiral of debt. The most important provision caps the annual interest that lenders can charge at 28%, down from the 391% allowed under the old law.

Q: What prompted the Ohio General Assembly to pass this bill?

A: Payday loans did not solve short-term financial problems. Instead, they caused long-term financial chaos. BREAD, along with many statewide allies, got the General Assembly to pass legislation that would change the way the system worked. BREAD kicked off this campaign at our 2007 Nehemiah Action. We brought forth testimony of payday lending victims and got FranklinCounty legislators to support the bill.

Q: Has Ohio always allowed 391% interest?

A: No. In 1995, the Ohio legislature gave the payday lending industry a special deal on a product that was described as a two-week loan used for the occasional emergency. The interest rate and fees needed to be higher, lenders argued, because it was just a two-week loan. So the product was exempted from the state’s usury and small loan laws and was allowed to charge fees and interests which usually amount to a 391% APR.

Q: Where will payday-lending customers go to get the short-term loans that they need?

A: There are many options that people have to fill emergency needs. First, most BREAD congregations (and other congregations throughout Ohio) provide assistance to people in need. Many credit unions offer products similar to payday lending, but at a much lower rate and with a longer repayment term. Some banks, including Key Bank, are beginning to offer these products as well.

Second, this law will not eliminate payday lending. It will simply lower the interest rate that lenders are allowed to charge and increase the minimum term of the loan. Two thirds of the payday lenders in Ohio have already applied for a license to lend under this new law.

Finally, the need for these loans is greatly inflated by the way the loans are structured. The payday lenders admit that, once someone takes out a loan, average borrower takes out 11 loans a year over a two year period. That means that the first loan was taken out to deal with a problem, but the next 10 loans are taken out as a result of the first loan. Over 90% of the loans are generated because of the debt trap that payday lending causes. There are plenty of options in place to meet the actual need.

Q: What about the 6,000 jobs that will be lost if payday lenders are shut down?

A: This bill does not ban payday lending. It simply limits the interest that payday lenders are able to charge. Over two thirds of payday lenders in the state have applied for licenses to lend money under the new law. Also, payday lending businesses provide many services other than payday lending, such as check cashing and Western Union. Many payday lenders are located in pawn shops and Rent-A-Centers. While some payday lending stores will shut down, many will continue to operate under the new rules.

Also, over $318 million was spent by Ohio families last year just on payday lending interest and fees. This money will now be spent in more productive ways, which will improve Ohio’s economy. We are confident that the $318 million dollars that will no longer be wasted on payday lending interest and fees will create more jobs than what will be lost.

Q: What does my vote mean on Issue 5?

A: A “Yes” vote for Issue 5 is a vote to approve of the 28% rate cap on payday lending. A “No” vote is a vote to eliminate the 28% rate cap and allow payday lenders to continue to charge 391%.

Wide Bipartisan Support for Legislative Reform: In the Spring of 2008, the Ohio General Assembly held multiple hearings in both houses about Ohioans falling into the debt trap with payday lending. Legislation was proposed by a conservative Repubican from Medina, Rep. William G. Batchelder, and cosponsored by Robert F. Hagan, Democrat from Youngstown.

House Bill 545 was promoted by Rep. Chris Widener, Republican from the 84th District and Chair of the Financial Institutions, Real Estate and Securities Committee, by the Speaker of the House of Representatives, Jon A. Husted, Republican from Montgomery and by the President of the Ohio Senate, Bill Harriws, Republican from Ashland. The bill was passed with an overwhelming majority vote (70-24 in the House and 29-4 in the Senate) and was enthusiastically signed by Ohio’s Democratic Governor, Ted Strickland.