Legal Memorandum: Scope of OH's Small Loan Act

Issue: What is the scope of the Ohio Small Loan Act?

Under the Small Loan Act, persons engaged in the business of loaning money in amounts of $5,000 or less must be licensed.  Ohio Rev. Code § 1321.02 (Supp. 2001).  A lender who makes a “contract of loan” without licensure violates the Act.  Id. 

In the case of State v. Mehaffey, 112 Ohio St. 330, 147 N.E. 506 (1925), the Court was asked to interpret the amended Pawn Brokers’ Act and to determine whether the appellant, an employee of the American Finance Company, had engaged in the business of making loans on salaries without licensure, in violation of the Act.  147 N.E. at 507.  Evidence at trial in Mehaffey showed that the appellant’s practice was to require those seeking to secure money from him to sign an agreement under which the applicants sold and assigned an undivided interest in earned wages.  Id.  The trial court found the appellant guilty of violating the statute.  Id.  On appeal in the Supreme Court, the appellant argued, through amicus curiae, “that it was the intention of the Legislature to make ‘purchasing’ and ‘making loans on’ separate and independent acts.”  Id.  The Court agreed.

The relations created by the transactions proven in this case are not those of debtors and creditor, but are those of sellers and buyer, to which the question of interest has no relation.  The . . . act throughout is replete with provisions as to loans and time of payment of principal and interest, all of which are unrelated […]

margin-bottom:0in;margin-left:1.0in;margin-bottom:.0001pt’>