Ohio payday loan laws, set by House Bill 123 (the Fairness in Lending Act) that took effect on October 29, 2018, cap interest at 28% per year on short-term loans of $1,000 or less, limit total fees to 60% of the loan amount, require repayment in substantially equal installments over at least 91 days, and give you three business days to cancel a loan you regret.1Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Short-Term Loan Requirements and Restrictions The rules replaced a system where annual percentage rates on these loans routinely reached triple digits.
Which Loans Are Covered
The Fairness in Lending Act governs short-term loans with a principal of $1,000 or less made by licensed lenders in Ohio.1Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Short-Term Loan Requirements and Restrictions These are the small-dollar, quick-turnaround loans historically marketed as payday loans or cash advances. The rules apply whether the lender operates from a storefront or online. Rebranding a loan or restructuring the paperwork does not change the analysis. If the amount is $1,000 or less and the lender is in the business of making these loans in Ohio, this law controls.
How Much You Can Borrow
No single short-term loan can exceed $1,000 in principal, regardless of your income.1Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Short-Term Loan Requirements and Restrictions The law also limits your total short-term debt across all lenders to $2,500 in combined principal at any one time. This prevents stacking loans from multiple providers as a way around the per-loan cap. Before approving a loan, lenders must verify your income through pay stubs or other reliable documentation.
What a Lender Can Charge You
A lender may only collect a specific list of fees. Anything not on the list is prohibited:
- Interest capped at 28% per year on the principal balance.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges
- A monthly maintenance fee equal to the lesser of 10% of the original loan amount or $30 per month. This fee cannot be added to the balance on which interest accrues.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges
- An origination fee of 2% of the loan amount, but only on loans of $500 or more. Loans under $500 have no origination charge, and the origination fee cannot be added to the interest-bearing balance.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges
- A returned check fee of up to $20, plus any pass-through charges from your bank if a payment bounces.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges
- A check cashing fee of up to $10 if the lender provides the loan proceeds as a check.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges
Even with every allowed charge stacked together, total fees and charges over the life of a short-term loan cannot exceed 60% of the original loan amount.3Ohio Legislative Service Commission. Ohio Revised Code 1321.403 – Short-Term Loan Fee Cap The only exceptions to the 60% cap are the returned check fee, the check cashing fee, and interest on a refinanced loan. On a $500 loan, that means total fees and charges outside those carve-outs cannot exceed $300 over the entire term.
How Repayment Has to Be Structured
Every short-term loan must run at least 91 days, giving you a minimum of three months to repay. The law allows one exception: the term can be shorter than 91 days if your total monthly payment does not exceed 6% of verified gross monthly income or 7% of verified net monthly income, whichever is greater.1Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Short-Term Loan Requirements and Restrictions
Every short-term loan must also be a precomputed loan repaid in substantially equal installments that combine principal, fees, and interest.1Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Short-Term Loan Requirements and Restrictions Precomputed means the lender calculates the total cost upfront, assuming all payments are made on time, and divides it evenly across the schedule. Balloon payments are out. Each payment chips away at the debt by roughly the same amount, so you always know what to expect.
Your Right to Cancel Within Three Business Days
You can walk away from a short-term loan within three business days of signing. To cancel, return the full principal amount by 5:00 PM on the third business day after the loan was made.4Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Right of Rescission If you do that, the loan is treated as if it never happened and the lender cannot collect any fees or interest.
Lenders are required to include a specific written notice about this right in every loan contract, printed in at least 10-point font.5Ohio Legislative Service Commission. Ohio Revised Code 1321.39 – Disclosure Requirements It’s the most valuable protection many borrowers never hear about. Take out a loan Monday afternoon, regret it by Wednesday, return the borrowed amount, and you owe nothing.
Paying Off Early and Getting a Refund
You can pay off a short-term loan early at any time, and lenders are prohibited from charging any prepayment fee. Prepaying also triggers a mandatory refund. The lender must return a prorated portion of the interest, monthly maintenance fees, and other charges based on how many days the loan was actually outstanding compared to the original term.6Ohio Legislative Service Commission. Ohio Revised Code 1321.402 – Prepayment Refund
The monthly maintenance fee is not considered fully earned at the beginning of the month. If you prepay halfway through a month, the lender can only keep half that month’s maintenance fee. Paying off a loan even a few weeks early recovers a meaningful portion of the fees.
Extra Protection for Military Borrowers
Active-duty service members and their dependents get an additional break. Lenders cannot charge any monthly maintenance fee to a borrower who is on active duty in the armed forces or to that person’s dependents.2Ohio Legislative Service Commission. Ohio Revised Code 1321.40 – Fees and Charges Because the maintenance fee can run up to $30 per month, this carve-out eliminates one of the biggest cost components for military families.
The federal Military Lending Act adds another layer. It caps the Military Annual Percentage Rate at 36% for covered borrowers, which includes finance charges, credit insurance premiums, and participation fees in the calculation. It also bans prepayment penalties and mandatory arbitration clauses for service members.7Consumer Financial Protection Bureau. Military Lending Act The Ohio and federal protections stack, so military borrowers get whichever rule is more favorable on each point.
What to Do If a Lender Breaks the Rules
Violating the borrower-protection provisions of the Fairness in Lending Act is treated as an unfair or deceptive act under Ohio’s Consumer Sales Practices Act. That gives injured borrowers a private cause of action with the same remedies available under that broader consumer protection law, which can include actual damages, statutory damages, and attorney fees.8Ohio Legislative Service Commission. Ohio Revised Code 1321.42 – Violations and Remedies
Enforcement isn’t limited to individual borrowers. The Ohio Attorney General has full authority to pursue lenders who violate the law, using the investigative and litigation tools available under the Consumer Sales Practices Act. The superintendent of financial institutions and county prosecutors can also seek injunctions to stop illegal lending practices.8Ohio Legislative Service Commission. Ohio Revised Code 1321.42 – Violations and Remedies
A separate federal rule protects your bank account. After two consecutive failed payment attempts, the lender must stop trying to withdraw money and cannot initiate another withdrawal unless you specifically authorize it in writing. That prevents repeated draws and cascading overdraft fees when you fall behind.
You can also file a complaint with the Consumer Financial Protection Bureau. The CFPB forwards the complaint to the lender, which generally has 15 days to respond (up to 60 in complex cases), and you then have 60 days to review and comment on the response.9Consumer Financial Protection Bureau. Submit a Complaint Filing with the CFPB doesn’t replace a state complaint or lawsuit, but it creates a federal record and often accelerates the lender’s attention to the problem. Signs a lender may be operating outside the law include charging fees the statute doesn’t authorize, refusing to honor your three-day cancellation, ignoring the 60% total-fee cap, or lending without an Ohio license.