Jamie Frauenberg, President of the Ohio Association of Financial Service Centers, minced no words this weekend in an opinion piece which appeared in the Columbus Dispatch.   This sort of clear thinking brings up precisely the points which critics can never seem to answer.

First, the loan is made for a two-week period, not 52 weeks. Why not calculate the interest based on the actual length of the loan? In this case, it would be 15 percent.

Second, using a payday loan to address unexpected financial shortfalls is far cheaper than alternatives, such as bouncing checks and overdraft-protection fees. Eliminating this product in no way affects demand; it simply drives consumers to more costly, possibly even illegal, alternatives. Other suggested options, such as borrowing from coworkers or family members, are simply not practical for many.

Third, delivering these products is relatively expensive because of the associated costs (labor costs, renting and maintaining storefronts, marketing expenses and bad debt, etc.). As a result, the industry average net income on a two-week loan with a $15 fee is $1.28. If the rate was capped at 36 percent, lenders would actually lose $11.37 for every $100 loaned, once the associated costs are subtracted. Obviously, the industry would be forced to stop offering payday loans if such a cap were implemented.