An Ohio law intended to cap interest rates on payday loans at 28 percent has been thwarted by lenders who have found ways to charge up to 680 percent interest, according to lawmakers who are preparing a second round of legislation.

The law, the Short-Term Loan Act, was enacted last spring and upheld in a statewide referendum in November. It decreased the maximum annual interest rate to 28 percent, from the previous 391 percent. Loans typically had terms of two weeks and were secured by a postdated check and proof of employment.

But more than 1,000 stores have obtained licenses to issue short-term loans under different laws that permit higher rates, according to a report by the Housing Research and Advocacy Center in Cleveland, which has worked to lower interest rates.

So lenders got legitimate licenses issued by the state to offer a different kind of product.  It goes to show that there is no pleasing so-called “consumer” groups.  They want stores to close, period.

How evil of them.

By nudging the loan amount to just above $500, lenders can double the loan origination fees from $15 to $30. The Small Loan and Mortgage Lending acts allow the fees on top of the 28 percent interest, something the new law doesn’t permit.

Last year, payday stores gave loans to customers as cash, but this year lenders present loans in the form of checks or money orders, which they then charge additional fees to cash.

What we take away from this story is that Ohioans still need short-term loans and payday lenders are doing their best to provide them.

“Nobody is going to do business under what HB 545 created,” Saunders said. “I have 700 employees in the state, and I’d like to make a go of it. We have a window of opportunity to keep the doors open.”

Saunders said he will evaluate the stores’ viability in a couple of months or sooner. The alternatives never will make things as lucrative for the business but might be enough for them to survive, he said.

Checksmart also has stores outside Ohio, which gives it an opportunity for survival that others do not have.

In an effort to continue serving customers in Ohio, Advance America has obtained small-loan licenses from the Department of Commerce for its 244 centers in Ohio. The company intends to offer a small loan product, under the Ohio Small Loan Act, at interest rates below the state’s usury cap, and check cashing and other services in compliance with applicable law in all Ohio centers.

“Our hope is to continue operating in Ohio,” Fulmer said. “We don’t want to lay off anyone, especially with the holidays coming up. But we will determine later if it’s an economically viable way for us to continue operating.”

State Issue 5 will have devastating consequences on short-term loan companies in Ohio, according to representatives from the payday-lending industry.

Ohio Voters approved the measure on Election Day. It caps interest rates on payday loans at 28 percent, limits short-term loans to a $500 maximum and adds other restrictions. Its passage upholds a decision made earlier this year by the Ohio General Assembly that was challenged through referendum. Interest rates were previously capped at 391.

The move will force one company, CashLand, a Cash America Company, to close 43 of approximately 140 Ohio stores, resulting in the loss of about 150 jobs, according to Yolanda Walker, director of public relations for Cash America.

Update: Similar story in Mansfield (OH) News.

Most employees at local payday lenders referred questions to corporate offices, but Paul Arcario, manager of Money Mart at 2238 Tuscarawas St. W, doesn’t believe supporters of the issue gave voters an accurate picture.

“I think the way it was portrayed was really unfair,” he said. While commercials supporting the issue talked about interest rates of more than 300 percent on an annual basis, “We make only two-week loans,” Arcario said.

Now payday lenders are fighting back with the ballot measures. They are pouring $30 million into initiatives that will be on the Nov. 4 ballot in Arizona and Ohio, where payday-lending branches outnumber Starbucks and McDonald’s outlets combined. The two states have laws that kicked in this year that cap annual interest rates at 36% and 28%, respectively, effectively outlawing payday lenders, which have a business model that depends on average annual rates of 391%.

“Most people think eliminating a credit option in a time of credit crisis is a bad idea,” said Stan Barnes, chairman of Yes on 200, a political-action committee that is championing the Arizona ballot initiative. Yes on 200 is financed by the local affiliate of the Community Financial Services Association, a national payday-lending group.