In a May 13th column, "Payday lending 'reform' in Ohio will just dry up these needed loans," Norbert Michel criticizes various nonprofit organizations, consumer advocates, financial regulators, and the Truth in Lending Act. The evidence-based, bipartisan payday loan reform bill in question, HB 123, is modeled after Colorado's 2010 law that protected consumers and kept credit widely available in that state even though lenders had protested, before the bill's passage, that it would not.
Mr. Michel makes a fundamental error when he says that HB 123 places "limits on the loan period." The bill does not actually set a fixed minimum or maximum loan term in the Short-Term Loan Act, and as a result lenders and borrowers alike have flexibility. The column's biggest concern appears to be with annual percentage rates, the loan disclosures that are required under the Truth in Lending Act to enable consumers to compare loan costs.
The author contends that payday loans are used for short amounts of time, although research reveals that most borrowers have loans out for many months of the year, and in Ohio's largely unregulated market, some lenders have set terms of more than one year. Despite opponents' rhetoric, HB 123 will achieve lower prices and more affordable payments, while maintaining access to credit.
Nick Bourke, Director, Consumer Finance
The Pew Charitable Trusts
Washington, DC