Ohio Walks Back Prior Small Loan Act Guidance, Eases Licensing Position for Bank Partnerships

Around Christmas 2024, the Ohio Division of Financial Institutions (“DFI”) left a lump of coal in marketplace consumer lenders’ proverbial stockings by issuing guidance that asserted a license under the Ohio Small Loan Act (“SLA”) was required to arrange consumer loans of $5,000 or less in exchange for compensation—even if those loans were issued by federally insured banks pursuant to their authority under federal banking law. Expanded guidance and FAQs issued in January 2025 further supported DFI’s position that a license would be required for many parties engaged in arranging or brokering Ohio loans. Combined, the issuances left some market participants—particularly those operating under bank partnership models—scrambling to determine whether their programs were subject to the SLA under the DFI’s new position, whether to apply for a license, and whether obtaining a license would then impose material substantive limitations on affected lending programs.

In a positive development for consumer-lending platforms (among other industry participants), the DFI appears to have withdrawn the 2024 guidance, albeit subject to the regulator’s ongoing consideration of underlying issues.

As of October 31, 2025, the DFI has updated its guidance on the application of the SLA to bank partnerships, reversing course from its earlier interpretation of the statute. The updated guidance states that the DFI will not require any non-bank entity that is compensated for arranging bank loans in any amount to obtain a license under the SLA or to otherwise engage in such activity.  Critically, the guidance also provides that the DFI does not intend to pursue enforcement action against any entity for engaging in such activity in calendar year 2025 without a valid license (whether or not such entity pursued a license application following the December 2024 and January 2025 guidance issuances).

With respect to licensing requirements, the updated guidance also states that the DFI will not require any entity that makes or arranges loans of $5,000 or less, but does not charge interest, to obtain a license under the SLA to engage in this activity. By statute, the licensing obligation continues to apply to any non-exempt entity that engages in the business of lending money in amounts of $5,000 or less or contracts for or receives, directly or indirectly in connection with such loans, “interest and charges that in the aggregate are greater than the interest and charges that the lender would be permitted to charge … if the lender were not a licensee” (typically an 8% annualized rate for consumer loans in the state unless alternative interest rate authority exists).

Beyond addressing the basic requirement to obtain a license, the updated guidance also states that the DFI will not enforce or seek to apply Section 1321.141 of the Ohio Revised Code against any entity engaging in activity that, as a result of the updated guidance, is not subject to licensure. That section of the Code prohibits SLA licensees from (i) making loans of $1,000 or less or a duration of one year or less, or (ii) engaging in any act or practice to evade this prohibition, including by assisting a borrower to obtain a loan on terms that would be prohibited. It had been a material point of contention for lending platforms operating through bank partnerships where the originating bank was not subject to a loan-duration limitation itself, but application of substantive requirements under Ohio’s licensing regime when a non-bank platform was involved in loan arrangement or brokerage could have resulted in indirect application of such a restriction.

The recent update is a welcome departure from the guidance it previously issued. Consistent with past updates, the DFI did not provide explanation for its updated guidance aside from stating that it had continued to engage with the industry and monitor ongoing developments. The new release suggests that a détente of sorts may have been reached for now, though further monitoring of the situation may be warranted as the DFI continues to engage on bank-partnership issues.