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Ellen Belcher is the Dayton Daily News opinion pages editor. She writes about state government, education, the environment, higher education and all things Dayton.
Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.Home > Blogs > A Matter of Opinion > Archives > 2010 > June > 11
Friday, June 11, 2010
Guest column: Consumers want option of small-dollar loans
This commentary was written by Ted Saunders, chief executive of CheckSmart.
Ohio has been hit hard by the economic climate. Many households are making difficult decisions every day to make ends meet.
This reality emphasizes the need — and value — of reliable access to short-term credit.
Unfortunately, short-term loans — usually around $300 — are too frequently undervalued by some legislators (and other critics of retail consumer lending). They seek to take financial choices away from those who need them most.
This misunderstanding was clear when the House passed HB 486 — legislation that will effectively eliminate access to relatively small-dollar loans. This bill was rushed through the House in a highly politicized manner.
Since then, there has been a genuine sharing of ideas on regulating short-term loans. But HB 486 does not reflect this.
Economists, small-business owners and clergy members delivered compelling testimony in opposition to the bill because they understand it will cause Ohioans to lose valuable access to credit while also eliminating jobs.
Additionally, this bill creates an uneven playing field, giving depository institutions a competitive advantage. These institutions will not be subject to the provisions of HB 486, including a limit on the number of loans offered per year, even though they provide a similar service.
Clearly, this bill is intended to shut down certain lenders in favor of others.
Consumers choose regulated short-term loans because other financial institutions do not fully serve them, and other options are often more expensive. HB 486 removes the ability to make that choice, but does nothing to reduce the need for reliable and affordable credit.
Some argue that consumers could use loan services offered by banks and credit unions. But these purported alternatives often involve a variety of restrictions and complicated fee structures. They are not an adequate substitute for the small-dollar, short-term loans offered by retail lenders.
Furthermore, these alternatives are not widely available. Research from Victor O. Stango of the University of California, Davis found that fewer than 6 percent of credit unions nationwide offer comparable short-term loans, primarily because “they see little chance to break even” on a low-cost, high-risk service.
Our critics also dismiss the sophistication of our customers. Indeed, the Daily News recently described them as “unsophisticated” and “desperate.” These assertions are unsubstantiated.
Our customers are salespeople, bus drivers, emergency personnel and even journalists. They make difficult decisions every day on the job and for their families, and are entirely capable of making informed economic choices.
This is confirmed by a study from the George Washington University School of Business. Roughly half of the consumers surveyed considered other forms of credit — such as bank or credit union loans — before selecting short-term, small-dollar loans.
The Daily News has also cited a so-called “will of the people” rationale for shutting down lenders, which overlooks tens of thousands of Ohioans who continue to utilize short-term loans.
Ohioans voted to sustain a severely restrictive fee cap on payday loans in 2008, and, as a result, many neighborhood lenders across Ohio have closed. To be sure, Ohio voters made their voices heard on the issue of payday loans specifically, but not on the need for short-term credit in general.
Some lenders, including CheckSmart, have altered their services in order to continue providing small-dollar loans. Indeed, state lawmakers urged lenders to make these changes and encouraged us to offer loans under the Mortgage Loan Act and Small Loan Act. The consumer loans that we now offer are different loan products than payday advances.
Our company provides a vital financial service; it is cost-competitive, simple and proportional to the needs of many consumers. In these uncertain times, it is imperative for legislators to consider the harmful impact that eliminating these loans would have on real people.
