City passes payday loan moratorium
Cleveland Heights City Council unanimously passed a payday loan moratorium at its June 3 meeting, prohibiting any new payday lenders without licenses under the Ohio Short-Term Loan Act of 2008. The moratorium will remain in effect until the state Supreme Court makes a final decision in the ongoing appellate case Ohio Neighborhood Finance Inc. v. Scott.
The legislation was passed as a pre-emptive measure, although Susanna Niermann O’Neil, acting city manager, said that no conventional payday lenders are currently operating in Cleveland Heights. University Heights has no plans for similar ordinances. According to Adele Zucker, University Heights councilwoman, “We have not legislated against [payday lenders], but no such types of stores have applied to be in our city.”
The ban, Ordinance 88-2013, was introduced by Vice Mayor Dennis Wilcox and received “aye” votes from all seven council members. Under the terms of the bill, payday loan providers issuing short-term cash advances may open new businesses in Cleveland Heights only if they are registered under the Short-Term Loan Act, which sets a ceiling at 28 percent APR (annual percentage rate) for loans less than $500 that have a duration of under 31 days.
All lenders issuing such loans are required to first receive a license from the Ohio Superintendent of Financial Institutions. The dispute in Ohio Neighborhood Finance Inc. v. Scott concerns whether businesses registered under a separate Ohio law regulating mortgages are in fact actually issuing payday loans, and if lenders may selectively choose to register under either the mortgage or the payday loan regulations.
The Ohio Supreme Court could potentially rule either on behalf of the lenders, permitting choice between the mortgage and loan statutes and the different restrictions each law places on lenders, or on behalf of municipalities like Cleveland Heights that seek tightly regulated payday loan providers—thus forcing those lenders to register under the payday loan law. Until that point, the council elected to exclude all new payday loan providers not registered under the Short Term Loan Act.
“We’re hoping that the Supreme Court is going to take a reading of the letter of the law,” said Wilcox. “If they say that this does apply to you [payday lenders], they’ll have to change their practices.” Wilcox noted that the existing maximum APR of 28 percent is “pretty high,” and expressed his dissatisfaction with payday lending business practices in general: “They’re preying on people in pretty dire straits. To put it in common vernacular, they’re getting ripped off.”
Wilcox was joined in his opposition to lending abuses by Council Member Jason Stein, who helped develop the idea for the bill during a meeting at constituent Micah Kermin’s home. Stein later echoed comments he’d made at the June 3 meeting—that payday loans are “predatory by nature,” and that borrowers “perhaps don’t have any other choice, or don’t realize what they’re getting into.” Stein also emphasized that he believes payday lenders “haven’t learned anything about being good citizens,” and that the moratorium is only a temporary measure. “We are continuing to explore the legalities [of additional legislation]. Predatory lending practices need to stop now,” said Stein.
Cleveland Heights Mayor Ed Kelley confirmed during the meeting that council is seeking further avenues for action and said, "Payday loan lenders—these businesses add nothing to our community. If anything, they prey on the less fortunate, people that are in financial crisis. We don't want them here; this moratorium is just the beginning.”
Alastair Pearson is a Cleveland Heights resident and a Saint Ignatius student. He is an editor at the school newspaper and literary magazine, and is interning at the Observer this summer.