Short-term loan act was smoke and mirrors

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Two weeks ago, the Ohio Supreme Court decided in Ohio Neighborhood Finance, Inc., v. Scott that lenders are not obligated to make payday loans under the Short-Term Loan Act, which restricted fees, and instead may lend under the Small Loan and Second Mortgage Acts, which permit significantly higher fees. The Short-Term Loan Act was passed for the supposed purpose of controlling payday loans, but not one loan has been made under the 2008 law.

The problem is, as the court concluded, when the legislature passed the Short-Term Loan Act, it did nothing to limit lending under the two already existing other loan laws.  This means lenders were and still are free to lend under the much costlier Small Loan and Second Mortgage Acts,  which trap the working poor in a cycle of very expensive borrowing.

How is it that the legislature passed a law that accomplished nothing? Let’s read what Justice Paul E. Pfeifer of the Ohio Supreme Court had to say about this:

“There was great angst in the air. Payday lending was a scourge. It had to be eliminated or at least controlled. So the General Assembly enacted a bill, the Short-Term Lender Act (“STLA”), R.C. 1321.35 to 1321.48, to regulate short-term, or payday, loans. 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. 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?”

The answer to both is questions is yes.


Jack D’Aurora writes for



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  1. Chris Harpster  June 23, 2014

    I have a hard time seeing how it’s in anyone’s best interest for lenders to make loans to people they know cannot repay the debit. We already saw how that played out in the housing market.


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