The Ohio Senate approved tough new regulations on Ohio’s payday lenders today, bringing the state very close to ending the payday industry as it currently exists.

House Bill 545 would slash the current interest rates charged by payday lenders to 28 percent, down from 391 percent, prohibit loans terms of less than 31 days, and limit borrowers to four loans per year. It would ban Internet payday lending, and it also attempts to encourage lenders to get into the small-loan business.

Payday lenders say the bill would quickly put their 1,600 Ohio stores out of business and 6,000 employees out of work. One industry lobbyist estimated that fewer than 150 stores would remain in Ohio, as some also offer other services, such as pawnshops or check cashing.

“This will, without a doubt, close the industry,” said Tiffany Verderosa, a Toledo-area manager for Fast Cash of America.

The Senate Finance Committee accepted about a dozen changes to the bill this morning, many of them related to Ohio Department of Commerce efforts to regulate the industry. The Senate then approved the bill 29-4, with four Republicans voting no.

Lawmakers hope some payday lenders will switch to offering a small-loan product with a 28 percent interest rate and $15 origination fee that can be paid off over 90 days. Lenders were generally dismissing that idea.

“Anyone who believes that the Small Loan Act is our savior knows nothing about finance and even less about what our customers want,” said James Frauenberg II, senior vice president of Dublin-based CheckSmart, which operates 105 stores in Ohio.

“I think everybody said there is just no way to redeem this product. It’s fundamentally flawed, and it all too often traps people in a cycle of debt they can’t get out of,” said Bill Faith, a leader of the Ohio Coalition for Responsible Lending, consisting of nearly 250 advocacy, civic and religious organizations.

The Ohio Chamber of Commerce opposed the bill because of the impending lost jobs.

“Our economy cannot afford to give up jobs like this industry provides when there was ample room to compromise to keep the industry going,” said Daniel Navin, the chamber’s assistant vice president of tax and economic policy.

But Sen. Keith Faber, a conservative Republican from Celina and member of the Finance Committee, said the unwillingness of the industry to strike a compromise helped bring about passage of the bill. Echoing a sentiment expressed earlier in the week by Finance Chairman Sen. John A. Carey Jr., R-Wellston, Faber said the industry repeatedly rejected alternatives, while offering proposals that barely deviated from current law.

Faber said he would have rather passed a bill that kept payday lenders going, requiring that they consider a borrower’s income before making a loan, and ending their aggressive debt-collection tactics.

“Those weren’t the cards dealt to us by the House and the governor,” he said. The House passed the bill in April after Gov. Ted Strickland said he wanted the measure to include a significantly lower interest rate cap.

Senate President Bill M. Harris, R-Ashland, also strongly supported passage of the bill, which some saw as key to bringing other Republicans on board.

“You can blame it on Bill Harris. He’s the one who made the decision in the caucus not to work with us," said W. Allan Jones, CEO of Tennessee-based Check into Cash, which operates 92 stores in Ohio. “I guess up here, you all just need one guy.”

Faith said he witnessed a number of attempts by House and Senate members to find middle ground. "Each time the industry said, ‘You’re going to put us out of business.’ They drew a line in the sand, and the legislature kicked the line aside and said we’re done with this toxic product.”

The industry argued that it has such a slim profit margin that stores could not afford to reduce fees or interest rates much below current law.

Payday lenders pushed hard in the past two weeks to stave off the bill, which passed the House in April. They hired more lobbyists, held a huge Statehouse rally, packed the committee hearing room with supporters, flooded Senate offices with phone calls and produced a statewide television and radio ad campaign.

Payday lenders argued they are providing a valuable service to people with low incomes, bad credit or sudden emergencies who have nowhere else to turn for credit. They argued that a payday loan is a cheaper option than a bounced check or late fee.

But the Republican-controlled legislature so far has been siding with the Coalition for Responsible Lending, which stressed that the current 391 percent annual percentage rate charged by payday lenders ($15 per $100 on a two-week loan) was outrageous and predatory.

The argument that appeared to resonate most with legislative leaders was that the two-week loan business model is inherently flawed, trapping too many borrowers in a debt cycle by forcing them to repeatedly take out new loans to pay for old ones.

Studies found that the average payday borrower in Ohio takes out between 10 and 13 loans a year.

Strickland has said he supports the bill, which must still get final House concurrence.