Public Justice : Ohio Joins the List of States Banning Payday Lending; Who Will Make the Sharks Follow the Law?

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About F. Paul Bland

F. Paul Bland, Jr., is a Staff Attorney for Public Justice (formerly Trial Lawyers for Public Justice), where he handles precedent-setting complex civil litigation. He has argued or co-argued and won more than twenty reported decisions from federal and state courts across the nation, including cases in the four federal Circuit Courts of Appeal and five state high courts. He was named the “Vern Countryman” Award winner in 2006 by the National Consumer Law Center, which “honors the accomplishments of an exceptional consumer attorney who, through the practice of consumer law, has contributed significantly to the well being of vulnerable consumers.” He is a co-author of a book entitled Consumer Arbitration Agreements: Enforceability and Other Issues, and numerous articles. For three years, he was a co-chair of the National Association of Consumer Advocates. He also has won the San Francisco Trial Lawyer of the Year in 2002 and Maryland Trial Lawyer of the Year in 2001 for his role in two cases challenging abusive mandatory arbitration clauses. Prior to coming to Public Justice, he was a plaintiffs’ class action and libel defense attorney in Baltimore. In the late 1980s, he was Chief Nominations Counsel to the U.S. Senate Judiciary Committee. He graduated from Harvard Law School in 1986, and Georgetown University in 1983.

Ohio Joins the List of States Banning Payday Lending; Who Will Make the Sharks Follow the Law?

On Monday June 2, Ohio Governor Ted Strickland signed into law a new statute that bans payday lending and caps the interest rate on loans at 28%. Last Fall, the U.S. Congress passed a statute that capped interest rates at 36% for certain loans for members of the military. (The statute that Congress passed was then gutted to a shocking extent by the Department of Defense. Under heavy pressure from banking industry lobbyists, the Department of Defense wrote regulations purporting to limit the scope of thelaw to just a handful of loans, a small portion of those set forth in the statute. Just another largely unnoticed action by this Administration to undermine pro-consumer statutes passed by Congress.) Since Congress acted, Arkansas, New Hampshire, Oregon and D.C. have all passed similar laws, and Ohio has just joined that list.

It’s easy to see why the Ohio legislature would want to limit payday lending – the state has been Ground Zero of the nationwide predatory lending crisis, with one of the highest home foreclosure rates anywhere. Payday lenders add to consumer woes by generally charging interest rates of 300% (that was not a typo – Tony Soprano would be happy with that rate) to 500%. In one case I handled, my client had been charged an interest rate of 1300%! Because payday loans require the consumer to pay back the entire principal amount just two weeks after the loan was taken out, literally 19 out of 20 payday loans are not paid back when they are due. Instead, 95% of borrowers have to take out a new loan or "roll over" the previous loan, paying another fee, and getting on (and staying on) a treadmill of debt.

It is yet to be seen if the payday lenders will follow the law, though. In several states where payday lending is or was illegal, the lenders have continued to operate, pretty much openly. In some states where the attorney general has been lax (I strongly doubt this will happen in Ohio), consumers have been on their own in enforcing laws against from payday lending.

To block consumer lawsuits, nearly every payday lender requires their customers to sign a standard form contract that bans the consumers from joining together in a class action lawsuit (it’s obvious to everyone on both sides of this controversy that it would be impossible for an individual consumer to bring a lawsuit to challenge the legality of a payday lender’s operations, it would be economically crazy), and have hidden those class action bans in a contract term that requires the consumer to take any legal claims that they have to arbitration. While many courts have struck down those sorts of unfair class action bans (Public Justice has handled cases in the New Jersey Supreme Court and in Florida courts where courts have done just that), some courts have enforced them, completely gutting the consumer protection laws in those states.

Fortunately for people in Ohio, two state Courts of Appeal have struck down class action bans of this sort. If the payday lenders violate the new law, hopefully consumers will have the opportunity to protect their rights.

Published Monday, June 09, 2008 2:30 PM by F. Paul Bland

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