Taxing the Unbanked: Why Ohio Should Protect Check-Cashing and Payday Borrowers

By Tiffany Davidson, Founder and CEO, Worldwide Institute for Success & Excellence (W.I.S.E.C.E.O.)

States and school districts are always looking for new revenue, and some ideas sound easy until you ask who would pay. One proposal that comes up in school finance discussions is a tax on people who cash checks or borrow at storefront lenders, charged on the size of the check or the amount borrowed. I recently evaluated that idea against the standard tests for a revenue source, and the answer was clear. It would raise little money, and it would collect that money from the households with the least.

This article has two parts. The first explains why this tax works against Ohio's own policy. The second is a practical guide for anyone using these lenders today.

Part 1: Why this tax falls on the wrong people

A small base made up of struggling households

In 2023, about 4.2 percent of U.S. households had no bank account, and another 14.2 percent had an account but still used services such as check cashing or payday loans (FDIC, 2024). These households are concentrated at lower incomes. A tax built on their transactions takes a larger share of income from families who can least afford it, which makes it regressive.

It is also unequal for people in the same situation. Two workers cashing the same $800 paycheck would pay different amounts depending only on whether one of them has a bank account. And because the base is narrow and shrinking as more people move to bank accounts and payment apps, the revenue would be small and unpredictable.

Ohio has spent years lowering these costs

Ohio lawmakers and voters have worked for more than a decade to protect the same borrowers this tax would target:

• 1996: H.B. 313 let check-cashing businesses make small loans, with annual rates that could reach 390 percent or more (Schiff, 2022).
• 2008: H.B. 545, the Short-Term Loan Act, limited these loans to $500 with a 28 percent annual rate, and voters upheld it at referendum. Lenders then moved to other lending laws and credit services brokers, where fees were unregulated, and no lender licensed under the new law for the next ten years (Schiff, 2022).
• 2014: The Ohio Supreme Court ruled unanimously that payday-style loans made under the Mortgage Loan Act were allowed, which kept those workarounds open (Toledo Blade, 2014).
• 2018: The Ohio Fairness in Lending Act, H.B. 123, required payday-type lenders to license under the Short-Term Loan Law and capped total interest and fees at 60 percent of the amount borrowed. Supporters estimated Ohio borrowers would save more than $75 million a year (Bourke, 2018).

A new tax on these customers would add back part of the cost the state has worked to remove. It could also push borrowers toward unlicensed online lenders, which hurts families and shrinks the revenue at the same time. Ohio can find school revenue in broad-based sources with low rates that do not single out families already paying the most for basic financial services.

Part 2: Know your rights and your options

If you or someone in your family is using a payday or short-term lender in Ohio, these protections and resources can help.

The rules for licensed short-term loans in Ohio

Under H.B. 123, loans from licensed short-term lenders must follow these limits (Ohio Legislative Service Commission, n.d.; Legal Aid of Western Ohio, 2020):

• Loan size: No more than $1,000, and no more than $2,500 owed to one lender at a time.
• Interest: No more than 28 percent per year.
• Monthly fee: No more than 10 percent of the loan or $30, whichever is less.
• Total cost: All fees and charges together cannot exceed 60 percent of the amount you originally borrowed.
• Time to repay: At least 91 days, unless your monthly payment is no more than 6 percent of your gross monthly income or 7 percent of your net monthly income. The longest term allowed is one year.
• Payments: Equal installments that steadily reduce what you owe.

If a lender is breaking the rules

Add up everything you have paid in interest and fees. If the total is more than 60 percent of what you borrowed, or the lender is not licensed, you can file a complaint with the Ohio Division of Financial Institutions, Office of Consumer Affairs, at (866) 278-0003. You can also get free legal help. Legal Aid of Western Ohio can be reached at 1-877-894-4599, and OhioLegalHelp.org can connect you with the legal aid office in your county.

Safer ways to borrow

Many federal credit unions offer Payday Alternative Loans (PALs). They cap interest at 28 percent, limit the application fee to $20, and do not allow rollovers (Experian, n.d.).

• PAL I: $200 to $1,000, repaid over 1 to 6 months, for members who have belonged to the credit union for at least one month.
• PAL II: Up to $2,000, repaid over 1 to 12 months, with no waiting period after you join.

Ask your local credit union whether it offers PALs or a small installment loan that can pay off a payday balance.

Help with bills and debt

• Call 2-1-1. Ohio's 2-1-1 lines connect you with local help, including your county's Community Action Agency, which may offer emergency assistance with bills and, in some counties, matched savings programs.
• Talk with a nonprofit credit counselor. Apprisen, based in Gahanna, Ohio, offers debt management programs that combine your payments into one plan.

Three steps to take this week

1. Gather your loan papers and total what you have paid in interest and fees so far.
2. Call your credit union about a PAL or another small installment loan.
3. Dial 2-1-1 and ask for your Community Action Agency or a nonprofit credit counselor.

Why this matters to W.I.S.E.C.E.O.

The Worldwide Institute for Success & Excellence (W.I.S.E.C.E.O.) equips young people from underserved communities, including immigrants, refugees, and low income youth, with digital skills, financial capability, and workforce readiness. Understanding how borrowing works, what the law protects, and where to find fair credit is part of building economic mobility. When public policy places new costs on the families we serve, we will keep explaining what those choices mean.

This article shares general information and is not legal or financial advice. For help with your situation, contact legal aid or a nonprofit credit counselor.

Sources

• Bourke, N. (2018, October 29). The Ohio legislature got payday loan reform right. The Columbus Dispatch.
• Experian. (n.d.). What is a payday alternative loan (PAL)?
• Federal Deposit Insurance Corporation. (2024). 2023 FDIC national survey of unbanked and underbanked households.
• Legal Aid of Western Ohio. (2020). New protections for payday loans.
• Ohio Division of Financial Institutions. Consumer complaint form.
• Ohio Legislative Service Commission. (n.d.). Digest of 2018 enactments: Financial institutions and consumer finance.
• Schiff, Y. (2022). Payday lending in Ohio. Ohio Legislative Service Commission.
• Toledo Blade. (2014, June 11). Ohio justices: Payday loans unaffected by 2008 law.