The Ohio Senate passed House Bill 123 clearing the way for Payday lending Reform.

Here is a summary of what HB123 will do if signed into law:

Ensuring Loans are Affordable

  • Loans limited to 30-day intervals with a maximum term of 12 months.
  • Maximum principal for any loan is $1,000.
  • No loans under 90 days unless the monthly payment (monthly share of principal + fees and interest) is not more than 7% of a borrower’s monthly net income or 6% of their monthly gross income.
  • Prohibits a borrower from having more than $2,500 in outstanding principal.

Reducing the Cost of Loans

  • Monthly maintenance fee is the lesser of 10% of the original principal or $30.
  • The cost of a loan (all fees + 28% maximum interest) cannot exceed 60% of the loan’s original principal.
  • Permits a one-time 2% loan origination fee on loans $500 or above in principle.
  • Interest is calculated each month on the remaining principal.

Enhancing Consumer Protections

  • Closes the CSO loophole.
  • All loans under 90 days are mandated to be affordable.
  • For loans 91 days or longer (that is, the borrower failed the means test for a shorter term), the lender must provide the borrower with a sample repayment schedule based on affordability.
  • Extends the 24-hour rescission period from the House version to 72 hours.
  • Retains the House prohibition on title loans, balloon payments, and interest-only loans.
  • Limits optional on-site check cashing fees for the loan to a maximum of $10.
  • Retains House requirement that all payments be substantially equal.
  • Clarifies that a third party may pay off part or all of a borrower’s loan.
  • Prohibits harassing phone calls from lenders.
  • Requires the lender to provide information to the borrower both orally and in writing.

The bill passed 21-9.

The bill now returns to the House of Representatives for a concurrence vote. If lawmakers in the House agree to the changes the Senate made the bill will go to the Governor for his signature.

The next voting session scheduled for the House is in September, which means it could go into effect early next year if it passes and the Governor signs it.

In the meantime, the payday lending industry continues to threaten they are going to close up shop in Ohio.