COLUMBUS, Ohio — The Ohio Supreme Court on Wednesday upheld a loophole in state law permitting payday loan lenders to operate without limitations established by lawmakers and endorsed by voters in a statewide referendum.
The unanimous decision reverses a Ninth District Court of Appeals ruling that Ohio Neighborhood Finance, which runs Cashland stores, wrongly used a mortgage lending license to get around state law cracking down on the lenders. The Supreme Court decision comes back the case to trial.
In 2008, Rodney Scott took out a $500 loan from a Cashland store in Elyria. When he didn’t repay the loan within two weeks, Cashland sued him. Fees and interest on the loan totaled an annual percentage rate of 245 percent — well above the 28 percent cap imposed on payday loan lenders in the 2008 Short-Term Loan Act.
But Ohio Neighborhood Finance wasn’t doing business under that law. Like many other payday loan businesses, Ohio Neighborhood Finance registered under the Mortgage Lending Act.
Elyria Municipal Court Magistrate Richard Schwartz concluded the lender skirted the short-term loan law and improperly issued Scott a loan. Schwartz cut Scott’s debt to 8 percent APR and Ohio Neighborhood Finance appealed.
The Ninth District Court of Appeals ruled payday loan lenders cannot suggest short-term loans under the Mortgage Lending Act. The decision only affected payday loan lenders in Lorain, Medina, Summit and Wayne counties.
In Wednesday’s Supreme Court opinion, Justice Judith L. French wrote the Short-Term Loan Act does not prohibit payday loan businesses from lending money under the Mortgage Lending Act.
“It is not the role of the courts to establish legislative policy or to second-guess policy choices the General Assembly makes,” French wrote. “If the General Assembly intended to preclude payday-style lending of any type except according to the requirements of the STLA, our determination that the legislation enacted in 2008 did not accomplish that intent will permit the General Assembly to make necessary amendments to accomplish that purpose now.”
Justice Paul E. Pfeifer wrote a concurring opinion because “something about the case doesn’t seem right.” Pfeifer recalled payday lending was “a scourge” that had to “be eliminated or at least managed” by lawmakers, who then passed the Short-Term Loan Act.
“And then a funny thing happened: nothing. It was as if the STLA did not exist. Not a single lender in Ohio is subject to the law,” Pfeifer wrote. “How is this possible? How can the General Assembly set out to regulate a controversial industry and achieve absolutely nothing? Were the lobbyists smarter than the legislators? Did the legislative leaders realize that the bill was smoke and mirrors and would accomplish nothing?”