BusinessTN

Earlier this year, Ohio became the latest state to pass lethal new regulations on the payday lending industry. The killing blow? Interest rates on payday loans were sharply reduced from the current 391% APR, which equates to $15 per $100 borrowed, to 28%, or $1.08 per $100 borrowed.

Allan Jones, founder and lone shareholder of Cleveland, Tenn.-based Check Into Cash and a pioneer in the field of financial services for under-banked customers, fought the new legislation vigorously in Ohio's capitol of Columbus. "We just got devastated up there," he says. After all, imagine loaning $100 for two weeks to high-risk clients for a fee of $1.08 while trying to keep the doors open and the lights on.

Driving the practice of payday lending out of the state—not simply reigning in interest rates—was precisely the intent of the legislation, says Uriah King, policy associate with the North Carolina-based Center for Responsible Lending (CRL), which led the charge to outlaw payday lending in Ohio. "[Ohio policy makers] fully understood that this would ban the product," he says. "And I think, frankly, that was the intent."

As such, Ohio joins a growing number of states that have effectively outlawed payday lending. In the past 12 months, legislatures in Oregon, Arkansas, New Hampshire and the District of Columbia have passed similar measures. King predicts other states will follow suit in the coming years. (North Carolina and Georgia have already banned the industry entirely.)

As similar legislation travels from state to state, healthy debate about the industry's merits and pitfalls follows on editorial pages and Internet message boards alike. Jones and his industry contend that they are merely offering convenient and popular short-term loans for unexpected costs, such as car repairs, in exchange for a fee that is cheaper than bouncing a check. Groups like the CRL may concede that APR is mathematically insignificant on a true two-week loan; however, they maintain that the payday-lending model creates a cycle of borrowing that traps the same group of consumers into floating the same principle over and over again.

Friend or foe of the industry, it's indisputable that the recent law passed in Ohio will impact employment levels in that state—the very reason the Ohio Chamber of Commerce opposed the legislation. The 1,650 payday lending stores in Ohio employ around 6,000 people. Check Into Cash alone has over 200 Ohio employees. Jones originally announced he would close his 93 Ohio stores (abandoning 143,000 square feet of retail and office space in the process). More recent developments, though, have caused Jones to soften his stance on abandoning Ohio altogether. At press time, a ballot measure was under way that could restore the industry's loan practices in Ohio. Jones added that he would try to pick up store volume via other financial offerings that could include short-term credit products and loan alternatives, which would allow him to break even and remain open in Ohio. "We've got a lot of staff that's been with us for years," he explains.

Regardless of the fate of the newest ballot measure fate, or of the jobs of the company's Ohio workers, Check Into Cash's bottom line appears safe. Jones' lost revenue will no doubt be recouped via his latest acquisition (unannounced at press time) of 91 stores in Texas, a state still considered friendly to payday lenders and viewed as the country's most profitable market for proprietors.