CTMT Columbus, 2008-06-06
by Wayne Henry
Columbus, OH
Recently, the Ohio Senate and House of Representatives passed the controversial House Bill 545, also known as the “Pay Day Lending Bill.” Now that the Governor has signed the bill, the following changes are imminent:
- Interest on short-term loans will be capped at 28% annually, including all charges and fees. Under the new law, for example, the maximum finance charge on a $100 loan with a 31-day term is approximately $2.38.
- The maximum loan amount will be reduced to $500 from $800.
- Creates the Financial Literacy Education Fund
- License fees for lenders seeking to issue loans will be doubled from $500 to $1000. Renewals will be $1000 annually.
- A statewide database will be created to determine eligibility of borrowers.
- The bill creates a new small loan, linked deposit program through the Treasurer of State (TOS) that would enable lending institutions to offer installment loans to consumers through certificates of deposit placed by the Treasurer at up to 3% below current market rates.
The Retail Team at Colliers Turley Martin Tucker is examining the situation in hopes of anticipating how changes will impact future retail vacancy. To that end, research in the industries future profitability and the affects of comparable laws created the basis for the following outlook.
According to the FDIC Center for Public Research, publicly available operating costs and profit data is very limited for the payday lending industry. A working paper issued by the FDIC in 2005 provides the most complete data. The following table is from the paper and includes information from two large pay-day lending firms comprising 600 stores in 22 states.
The average total store revenue per loan is subtracted from the average store operating cost to show average store operating income. As corporate interest expenses and shared administrative costs are averaged into store profits, profitability is dramatically reduced.
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Other states with similar laws help forecast the future of the short-term Ohio’s lending industry. In 2001, the Indiana Supreme Court ruled to limit payday finance charges to 72% APR. According to the HB 545 Fiscal Note & Local Impact Statement from the Ohio 127th General Assembly, lending companies and branch locations decreased from 119 lender companies with 463 total branches to 44 and 313 respectively as a result of Indiana’s change in laws.
Oregon, who instituted a new law July 1, 2007, provides the most recent example. The new law in that state limits finance charges to $10 per $100 barrowed and caps interest rates at 36% APR. The minimum loan term is 31 days. Following new laws, the nation’s largest cash advance company, Advance America, closed 45 stores in Oregon to date. Also, QC Holdings closed eight and First Cash Financial Services closed two of its seven stores. All noted Oregon’s new regulations and its effect on revenue as the major reason for shuttering locations.
Locally, the effects of HB 545 are beginning to ripple throughout Ohio. Yesterday, National Check Cashers and Always Payday announced that they will close all 34 Ohio stores, which are all located in Central Ohio. Check into Cash, who has six Columbus locations has indicated they will shutter all 93 Ohio stores. This will impact more than 143,000 SF of retail space. Likewise, the publicly traded company, Cash America International Inc. said it anticipates closing all 139 stores in Ohio. Heartland Cash Advance, a Columbus-based company also initiated the first steps to end operations. More are expected to follow.
About Colliers International
Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.
Contact Information
Wayne Henry
614.827.1724
whenry@ctmt.com
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