In 2008, Ohio voters expressed a firm “no” to payday lenders. They rejected the industry’s effort to overturn legislation that tightly regulated the usurious business. The payday operators then thumbed their noses at the result. They continued lending at exorbitant interest rates, claiming to find room under another section of state law.
The hope is, that will change, starting with a ruling last week by the 9th District Ohio Court of Appeals. The 2-1 majority essentially held that payday lenders no longer could duck a law approved by the legislature and reaffirmed by voters.
Writing for the court, Judge Eve Belfance placed heavy emphasis on what lawmakers intended when they acted. She argued that lawmakers hardly had in mind going to such trouble crafting new regulations for payday lenders so the businesses could escape easily its bite, finding refuge elsewhere in state law, nullifying all of the legislative work.
The court rightly rejected the notion that somehow lawmakers intended to give payday lenders a choice: Comply with the new tougher Short-Term Lender Law or a seemingly more accommodating Ohio Mortgage Loan Act. Which payday lender would opt for the former route?
The case involves a man who borrowed $500 from Cashland — to be repaid in two weeks, the loan carrying a 245 percent annual percentage rate, or just what lawmakers sought to eliminate by establishing a 28 percent interest cap on such short-term loans. The borrower defaulted. Cashland sued to collect, arguing that it is registered under the Mortgage Loan Act and the act permits such single-payment loans.
The Elyria Municipal Court concluded the payday loan did not meet the requirements of the Mortgage Loan Act and thus was improperly issued. The appeals court picked up the thinking, citing the absence of an “interest-bearing loan,” “computed, charged and collected on unpaid principal balances outstanding from time to time.”
The majority cites ambiguity in the law, something Judge Clair Dickinson, in dissent, disputes, arguing that the language is plain enough and allows for the Cashland loan. As it is, the clash of interpretations all but ensures a trip to the Ohio Supreme Court. A payday lending industry willing to mount a statewide campaign won’t likely quit without launching a further appeal.
The reality that looms, and the appeals court got right, is the intent of lawmakers — and voters, the legislation and campaign attracting wide attention. Ideally, the legislature would move to clarify the law, bolstering the regulation. The purpose surely wasn’t to establish protections for consumers that payday lenders just could ignore.