A figure in the Dec. 3 article ("CUs Skeptical About Expanding Colorado's Payday Loan Law Nationwide") should be placed in better perspective to avoid misinterpretation. Colorado changed its payday loan statute in 2010 to eliminate balloon payments and require that the loans be repayable over time in affordable installments. The article highlighted the fact that after the law changed, the number of payday loans made annually dropped from 1.57 million to 440,000. These figures are accurate but are not meaningful, because they compare two very different products: lump-sum and installment loans.
There are fewer payday loans in Colorado now because each loan is structured to last for months, not weeks. After the law changed, new installment loans lasted more than five times as long as the short-term loans made before the change (104 days on average in 2011 vs. 19 days in 2009). So, for example, if a person had a $500 loan out before the law change for 10 pay periods over six months, it counted as 10 loans with a nominal value of $5,000. If that same person had the same $500 out for the same six months after the law change, it counted as one loan with a nominal value of $500. In this example, loan volume and loan count appear to have dropped by 90 percent, even though the person borrowed the same amount for the same number of days.
The reality is that access to credit remained widely available throughout Colorado after the state's payday loan reform, and consumers are much better off than before. Examples of more meaningful comparisons for 2009 and 2012 are number of borrowers per year (279,570 vs. 238,014), spending per borrower per year ($476 vs. $277), days of credit used per borrower per year (148 vs. 227), share of a borrower&'s biweekly income consumed by a loan payment (38 percent vs. 4 percent), and total lender-charged bounced check fees ($960,201 vs. $413,424).
Borrowers would receive better value by going to credit unions and other lenders that offer small loans with costs that are far lower — and payments that are far more affordable — than those offered by conventional payday lenders. In developing rules for the small-dollar loan market, the Consumer Financial Protection Bureau should follow the lead of credit unions and Colorado's 2010 reform and require all small-dollar loans to have affordable payments.
Nick Bourke is director of the small-dollar loans project at The Pew Charitable Trusts in Washington.