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Alert: Important Changes to Ohio Law Impacting Consumer Credit Industry

July 24, 2012

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Ohio Statute Of Limitations For Written Contracts Shortened

On June 12, 2012, the Ohio General Assembly passed Ohio Sub. S.B. No. 224, amending section 2305.06 of the Revised Code, which establishes the statute of limitations for actions upon a written agreement or contract. Sub. S.B. No. 224 shortens the statute of limitations for such claims from fifteen years to eight years. This bill has been signed by the Governor and becomes effective on September 28, 2012.

The amended statute of limitations applies to claims in which the cause of action accrues on or after the effective date, September 28, 2012. Please note that in calculating the applicability of the amended statute of limitations, the relevant factor is when the cause of action accrues, not when the contract was signed. In Ohio, generally speaking, a cause of action for breach of contract accrues when the breach occurs or when the complaining party suffers actual damages. Therefore, an action for a breach of a written agreement or contract that occurs on or after September 28, 2012 must be brought within eight years from the date of the breach or it will be time-barred. Of particular importance, this amendment shortens the period of time that creditors have to sue on a debt if borrowers become delinquent on or after September 28, 2012.

The bill further provides that when the cause of action accrued prior to the effective date of the bill, the statute of limitations is either eight years from the effective date of the act, or the expiration of the statute of limitations that was in effect prior to the effective date of the act, whichever occurs first. Under this transitional rule, if, for example, a borrower becomes delinquent before September 28, 2012, the statute of limitations expires at the shorter of either eight years from the effective date (September 28, 2020) or the previous period of limitations (fifteen years from the date of the breach).

As a practical matter, the transitional rule distinguishes between causes of action that accrued before September 28, 2005 and causes of action that accrued on or after September 28, 2005. An action based on a breach of a written agreement that occurred on or after September 28, 2005 must be initiated by September 28, 2020 or it will be time-barred. An action for a breach of a written agreement that occurred before September 28, 2005, however, must be brought within fifteen years of the date of the breach, which will result in a deadline earlier than September 28, 2020. Thus, the bill creates a diminishing statute of limitations, and until September 28, 2020 (when the transition to the new statute of limitations will be complete), creditors must be mindful of this rule to determine the applicable statute of limitations if the cause of action accrued before September 28, 2012.

The previous exceptions to the fifteen year period of limitations continue to apply in the amended law. For example, an action for breach of a contract for sale of goods under the Uniform Commercial Code must still generally be brought within four years.

Ohio Enacts Law Allowing Charges For Debt Cancellation Products To Be Included in Retail Installment Contracts

On May 23, 2012, the Ohio General Assembly passed Ohio Am. Sub. H.B. No. 487. In relevant part, this bill amends the Ohio Retail Installment Sales Act, Ohio Rev. Code §§ 1317.01 through 1317.24. Section 1317.05 of the Revised Code has been amended to expressly allow retail sellers to contract for debt cancellation or debt suspension products in retail installment contracts. This bill has been signed by the Governor, filed with the Ohio Secretary of State, and will take effect September 10, 2012.

As defined in the bill, “a debt cancellation or debt suspension product” is a contractual agreement in which a retail seller, or its assignee, agrees, for a separate charge, to release the retail buyer from all or part of the buyer’s remaining loan balance in the event that the buyer’s motor vehicle, which is the subject of the retail installment contract, is involved in a total loss accident or is stolen. Debt cancellation or debt suspension products also include products such as guaranteed asset protection waivers, guaranteed auto protection waivers, or other similarly named agreements.

The bill requires that any debt cancellation or debt suspension product must be considered a part of the retail installment contract, and remain a part of the contract if the contract is assigned, sold or transferred. Further, the bill requires that the purchase price and terms of the debt cancellation or debt suspension product must be disclosed to the buyer in writing, and the charge for that product must be listed as a specific good in the contract. The amended statute does not require retail sellers to provide this information in the retail installment contract, as it permits the creditor to provide the disclosures to the consumer in an addendum.

Additionally, the bill prohibits a retail seller from conditioning the extension of credit, the terms of the credit, or the terms of the related motor vehicle sale or lease, on the purchase of a debt cancellation or debt suspension product. Finally, the bill states that a debt cancellation product or debt suspension product is not considered insurance.

Ohio Legislature Passes Law Allowing Bank Interest Rate Parity for Revolving Credit

On May 22, 2012, the Ohio General Assembly passed Ohio Sub. H.B. No. 322, which enacts sections 1109.181, 1151.2911, 1161.441, and 1733.253 of the Revised Code to permit Ohio-chartered banks, savings banks, savings and loan associations, and credit unions to charge the same or lower rates or amounts of interest, fees, and other charges under a revolving credit agreement that corresponding out-of-state financial institutions may charge Ohio revolving credit customers. This bill has been signed by the Governor and becomes effective on September 4, 2012.
The bill defines “revolving credit agreement” to mean an agreement in which a bank, savings and loan association, savings bank, or credit union contemplates repeated transactions and the amount of credit that can be extended pursuant to the agreement is made available to the extent that any outstanding balance is repaid. The bill specifies that a “revolving credit agreement” does not include an agreement secured by a “residential mortgage,” which the act defines as an obligation to pay a sum of money evidenced by a note or agreement and secured by a lien on real property located in Ohio containing two or fewer residential units, or on which two or fewer residential units are to be constructed.

Finally, the bill states that Ohio-chartered financial institutions taking advantage of the new parity statutes are not subject to Ohio laws limiting such interest, fees, and other charges.

For more information about these important changes in Ohio law, please contact Arthur Rotatori: arotatori@mcglinchey.com, (216) 378-9932; or any other member of the McGlinchey Stafford Consumer Financial Services team.