So-called payday lenders in Ohio are "deliberately circumventing" a law passed a year ago to cap loan interest rates and provide other protections, according to a state consumer advocacy group.
In its 12-page report released yesterday, Policy Matters Ohio maintains that most payday lenders are not operating under a law to regulate them and instead are lending under two older laws not enacted to cover small short-term loans.
Using the two other laws - the Ohio Mortgage Loan Act and the Small Loan Act - is permitting payday lenders to charge more in interest and fees than they were charging before last fall's passage of the Short-Term Loan Act that capped payday loans at 28 percent interest and guaranteed a 30-day repayment period.
"They're circumventing the law because they're not lending under the law that was conceived to govern them," said David Rothstein, a researcher at Policy Matters Ohio and the author of the report. "They are lending under laws that were not conceived for them."
Mr. Rothstein said the payday lenders may be violating the spirit of the new law by not operating under it, but "we did not find anything they're doing that is illegal" by operating under the other two statutes.
The report confirms what had been expected: that payday lenders would offer other types of loans.
Policy Matters looked at nine lenders across the state, including three operating in the Toledo area - Advance America Cash Advance, National Cash Advance, and Check Into Cash. The agency gathered information from telephone calls and visits to 69 payday lending stores.
All continue to charge interest of at least 100 percent, and many make their loans due in 14 days or less, the report said.
Researchers also found some lenders charge new fees, such as an origination fee, a credit-check fee, or a handling fee to convert the loan from an issued check into ready cash.
Jamie Fulmer, a spokesman for Advance America Cash Advance, of Spartanburg, S.C., and its subsidiary National Cash Advance, said payday lenders were advised before the new law was passed to seek alternative lending practices or leave the state.
"Now when doing what we had been suggested to do, it is still not satisfactory to these critics," he said. "Consumers still have a need for short-term credit."
Jennifer Mooney, a spokesman for an Ohio payday lender coalition that includes Check Into Cash, of Cleveland, Tenn., said her group hasn't fully studied the Policy Matters Ohio report. "But our companies are in full compliance with Ohio law....
"The credit market is very tight right now and the economy is very bad. [Payday lending] still comes out as the lowest-priced option to borrow money for many people."
Ohio Attorney General Richard Cordray last week sent written testimony to the state legislature expressing his belief that payday lenders are exploiting a loophole by using the older laws and not issuing loans under the new Short-Term Loan Act.
He expressed his support for a new bill, House Bill 209, which would close the loophole.
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