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Split 9th District affirms reading of unclear lender law in Cashland case

A branch of the Cashland lender chain sits on State Road in Cuyahoga Falls. The 9th District Court of Appeals held on December 3 that Cashland’s single-payment payday loans are not legal under the Ohio Mortgage Loan Act and must be regulated under the more stringent Short-Term Lender Law. (Photo by Benjamin White/Akron Legal News)

BENJAMIN WHITE
Appellate Notebook

Published: December 14, 2012

Last week the 9th District Court of Appeals clarified a vague state law regulating lending as it reviewed the legality of a short-term loan issued by Ohio Neighborhood Finance Inc., also known as Cashland.

Judge Carla Moore joined Judge Eve Belfance, who authored the opinion affirming the Elyria Municipal Court’s decision that the Cashland loan fell outside the intended requirements of the Ohio Mortgage Loan Act. Judge Claire Dickinson dissented, adhering to what he believed to be plain language.

In December 2008, Rodney Scott obtained a $500 loan from Cashland, agreeing to the “payment schedule” of a single $545.16 payment (at 9.03 percent interest) due on the 19th of the same month. When Scott failed to repay the loan, Cashland sued and moved for default judgment in the Elyria Municipal Court.

Following a hearing, the trial court magistrate issued a decision recommending that Cashland was only entitled to a judgment of $465 at 8 percent annual interest because the loan failed to comply with the Ohio Mortgage Loan Act. Cashland appealed, claiming the loan fit within the framework of the law, R.C. 1321.57.

The court noted that the case revolved around two provisions of Ohio law: the aforementioned Ohio Mortgage Loan Act and the Short-Term Lender Law (R.C. 1321.35), which replaced the Check-Cashing Lender Law in 2008 in the Ohio General Assembly’s effort to fight predatory loans.

Cashland argued that the Ohio Mortgage Act, under which it was registered, allowed for the loan in question under its “interest-bearing loan” definition. The law defines such a loan as one “in which the debt is expressed as the principal amount and interest is computed, charged, and collected on unpaid principal balances outstanding from time to time” (R.C. 1321.51(F).

Cashland argued that “from time to time” modified “unpaid principal balances outstanding,” allowing for a single-payment loan. If “from time to time” modified “computed, charged, and collected,” the law would require interest to be collected in multiple installments.

“In other words,” Judge Belfance wrote, “the statute is ambiguous.”

In determining legislative intent in such a case, a court may consider the law’s object, the circumstances of its enactment, legislative history and potential consequences.

The court first considered the Short-Term Lender Law, which caps single-payment loans at $500 and requires their durations to exceed 30 days. Such “payday loan” lenders, which must register under the law, cannot charge an interest rate higher than 28 percent or additional fees.

Though registrants under the Ohio Mortgage Loan Act cannot charge as high of an interest rate as those under the Short-Term Lender Law, they can charge additional fees, make larger loans and secure them with property. Cashland argued that lenders could choose which law to register under to make single-payment loans.

The majority held that the General Assembly enacted the Short-Term Lender Law to regulate single-payment loans. If the Ohio Mortgage Loan Act allowed registrants to issue the same type of loans, the “effect would be to nullify the very legislation that is design to regulate payday-type loans – a result at odds with the intent of the General Assembly,” Judge Belfance wrote.

Even so, Cashland argued that the loan did not necessarily constitute a single-payment loan, noting that Scott could have made multiple payments or arrange for an extended payment plan involving multiple payments. The court did not agree, quoting the terms of the loan, which clearly specified one payment.

The court then cited Russin v. Shepherd, a 2007 11th District case, which held that the fact that the loan does not prohibit multiple payments does not change the nature of the loan from single- to multiple-payment.

Because the court found the loan impermissible under the Ohio Mortgage Loan Act, it affirmed the trial court’s decision to limit its yearly interest rate to 8 percent, adhering to the standard set by R.C. 1343.01(A).

Judge Dickenson’s dissent was indebted to an interest in the laws of English grammar as well as Slingluff v. Weaver, a 1902 Ohio Supreme Court case cited in an abundance of modern case law.

Slingluff held that “[s]tatutes and contracts should be read and understood according to the natural and most obvious import of the language, without resorting to subtle and forced constructions…”

Judge Dickenson wrote that the “most natural and obvious reading” of the law in question is that the phrase “from time to time” modifies the words immediately preceding it (“unpaid principal balances outstanding”). From that grammatically unmistakable perspective, Scott’s Cashland loan would qualify as a legal loan under the Mortgage Loan Act, since its terms indicated the amount of interest daily.

With that reading, multiple payments would not be required, allowing a loophole for payday lenders to circumvent the Short-Term Lender Law.

While Judge Dickenson acknowledged a problem with the legislation as written, he noted that while the “general policy, the spirit and the reason of an act may properly be applied to reconcile conflicting or doubtful provisions of an act, [it] can not be permitted to override the effects of words of clear import” (Talbott v. State ex rel. Houston, 2d Dist. 1916).

Though Judge Dickenson believed the majority had “ignored the plain language” of the law, the court affirmed the trail court’s verdict. The case is cited as Ohio Neighborhood Fin. Inc. v. Scott, 2012-Ohio-5566.


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