Restrictions on Payday Lending in Ohio

Ohio's Short-Term Loan Act restricts what payday lenders can charge and prohibits them from engaging in certain abusive lending practices.

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Ohio law protects you from certain types of practices by payday lenders. Ohio's Short-Term Lender Law limits what payday lenders can charge you and what they can do to you if you fail to repay the payday loan.

Read on to learn what Ohio laws prohibit, who is covered by the laws, and what you can do if a payday lender or its debt collector violates your rights.

Ohio's Short-Term Loan Act

Ohio's consumer laws used to be relatively friendly towards payday lenders. Check cashing places and other payday lenders were allowed to charge you interest of up to 5% per month, charge excessive fees for nonpayment, and recycle your loan into a new loan if you did not repay it in time.

Because many believed that payday lenders charged exorbitant interest rates and fees and engaged in abusive lending practices, in 2008 Ohio enacted the Short-Term Loan Act (STLA). The STLA is designed to limit the dollar amounts, interest rate, and other fees for a payday loan. It also restricts what a payday lender can do if you do not repay the loan.

Limits to Loan Terms for Payday Loan

Under the STLA, a payday loan (sometimes called a “short-term loan”) is subject to the following limits:

  • amount of the loan is capped at $500, total

  • the loan duration cannot be less than 31 days

  • repayment can be extended to at least 60 days, at your option, with no additional charge to you

  • interest rate is capped at 28% APR, and

  • check collection charges (such as for an NSF check) are capped at $20.

Payday Loan Agreement Must Be in Writing

The STLA requires payday lenders to put your loan agreement in writing, using clear and concise terms. Your loan agreement, at a minimum, must:

  • state the total amount of fees and charges you must pay

  • state the payment amount, due date, and number of required payments you must make

  • include a bold warning that the cost of the loan is higher than the average amount of a similar loan that you could obtain from a regular bank

  • inform you of the the right to make a complaint concerning the loan with, and provide contact information for, Ohio's department of commerce division of financial institutions

  • disclose the actual cost of the loan and any additional information required under the Truth in Lending Act (To learn more about TILA, visit the FDIC's at www.fdic.gov/regulations/laws/rules/6500-1400.html), and

  • state your interest rate as an APR, base on all interest and charges in connection with the loan.

Ohio License Required

Payday lenders must be licensed in Ohio. Furthermore, licensed payday lenders must be physically located in Ohio when extending the loan to you. STLA prohibits lenders from giving you a short-term loan over the phone, by mail, or through the Internet.

Prohibited Payday Lending Practices

In addition to restricting the types of loans that payday lenders make, there are some practices that are totally prohibited under the STLA. Under the STLA, a payday lender cannot:

  • charge or collect any additional fees outside what is allowed under the STLA or laws concerning civil debt collection lawsuits

  • charge or collect triple damages from you if you bounce a check or the lender sues you

  • make more than one loan to you at the same time, if the total amount of all loans is more than $500

  • require you to repay loans that total more than 25% of your gross monthly salary

  • require you to waive any legal rights with regard to the loan

  • renew an existing short-term loan with you

  • accept collateral from you as security for the loan, such as title to your car or home

  • disguise your payday loan as a sale or lease or cash rebate to avoid its obligations under the STLA

  • charge you a penalty for paying off your loan early

  • recommend that you borrow more than what you asked for

  • make more than four loans to you within a year

  • make more than two loans to you within 90 days of each other, unless you first attend an approved financial literacy program

  • bill your credit card or electronically draft your bank account

  • make false or misleading ads or engage in any other deceptive trade practice

  • offer you a reward, gift or other incentive to take out multiple loans, or offer you a free or discounted loan in exchange for your future business

  • redeposit a previously dishonored check from you unless you consent in writing, and

  • alter your paper check or submit false information about your check.

Prohibited Collection Practices

In addition to restricting the types of short-term loans that a payday lender can extend to you, the STLA also limits the ways that a lender can collect the debt from you if you fail to repay it. This part of the statute supplements the Fair Debt Collection Practices Act. (To learn more about the FDCPA, see Nolo's Illegal Debt Collection Practicestopic area.) The STLA provides more protection than that offered by the FDCPA because it covers debt collection practices by the original lender.

Both the payday lender and any debt collector hired to collect the loan on the lender's behalf are prohibited from:

  • communicating with, or disclosing information about your debt to, other persons about your debt unless that person is your attorney

  • contacting you directly if it knows you have an attorney

  • using postcards or other mailings that references a debt

  • contacting you before 8:00 a.m. or after 9:00 p.m., or at an unusual or inconvenient place

  • contacting you at your place of employment if it has reason to know that your employer does not allow such contact

  • continuing to contact you after you have notified the lender or debt collector in writing to cease communications

  • harassing, annoying or abusing you by telephone or using obscene or profane language

  • misrepresenting or lying about the amount, character or legal status of the loan

  • misrepresenting or lying about attorney involvement on behalf of the lender or debt collector

  • threatening the use of law enforcement or jail

  • threatening to garnish or attach property, or take other legal action when the lender or debt collector has no present intent or right to do so

  • reporting false or misleading information about the debt to a credit reporting agency

  • using false or misleading letters and other documents to collect the debt, and

  • soliciting checks postdated by more than 5 days or prematurely depositing postdated checks.

A Payday Lender's Duties to You

The STLA requires payday lenders to conduct themselves in a certain way with borrowers. When you take out a short-term loan, that lender must:

  • follow all of your reasonable and lawful instructions

  • act with reasonable skill, care, and diligence toward you, and

  • deal with you fairly, and in good faith.

If the Payday Lender Violates the STLA – Lawsuits and Remedies

You have a private cause of action if a lender or debt collector creditor harms you in violation of the STLA. This means that you can file a lawsuit in Ohio against the creditor or its debt collector for damages. If you win, the court may award to you:

  • cancellation of the loan (called “rescission”), if done within a reasonable time after you discovered the violation, or 
  • up to three times the amount of your actual damages or $200 (whichever is greater) plus additional statutory damages of up to $5000,
  • potential punitive damages, and
  • attorney’s fees and court costs.

The lender or debt collector may be subject to criminal sanctions, enforceable by the Ohio attorney general. If you have a potential claim against a payday lender, you can visit Ohio's Division of Financial Insititutions webpage at www.com.ohio.gov/fiin/stabout.aspx

You may also have a private right of action for violation of the FDCPA. For more information, read Nolo's article Illegal Debt Collection Practices.

Getting More Information

For more details on what the STLA does and does not cover, you can read Ohio's Short-Term Loan Act (“STLA”), General Statutes §1321.35 to 1321.48. To learn how to find state statutes, visit Nolo’s Legal Research Center.

You can also find more information on the Ohio Attorney General’s website at www.ohioattorneygeneral.gov/consumerlaws.

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