The Obama administration has targeted a number of unpopular industries, such as gun stores and dollar lenders, for overly restrictive regulations designed to bankrupt them. While it is popular to hate low dollar lenders, who offer title and payday loans to consumers who cannot access other forms of credit, the growing number of these lenders in most cities is proof of this. customer demand for their services.
About 12 million Americans, mostly low-income, need to use payday loans to meet their financial needs, but the administration and some Liberal politicians in Congress want to completely eliminate access to these services. credit.
Draconian regulations proposed by the Consumer Financial Protection Bureau, an almost irresponsible new federal agency created under the Dodd-Frank Financial Regulation Act in 2010, would put most, if not all, payday lenders out of business. The regulation would impose a strict credit analysis of consumers applying for payday loans on lenders, limit loans to no more than two extensions, and add countless other restrictions as well. The stringent regulations would make the small loan industry almost entirely unprofitable and shut down most payday lenders.
While many politicians believe they are saving consumers from themselves by eliminating their access to services like payday loans, a survey by the George Washington University School of Business finds that 89% of payday loan consumers are “very satisfied” or “somewhat satisfied” with their last loan. , and 86% see payday loans as a useful service. In many states, liberal state nanny politicians have heavily regulated, and in some cases banned, payday loans.
Critics of payday loans claim that consumers find themselves in a “debt trap” by taking out such a loan, which typically involves around $ 15 paid every two weeks for every one hundred dollars borrowed, continuing to extend the loan by paying only interest every two weeks for several months. But in Georgia and North Carolina, where payday loans were banned, the situation for payday loan consumers worsened. A 2007 study by the Federal Reserve Bank of New York found that these consumers more often forfeited bad checks, filed more complaints with the Federal Trade Commission about lenders and debt collectors, and more cases of bad debt. Chapter 7 bankruptcy.
While the interest rate for a payday loan is around 400% per annum, the comparable rates of the alternatives are worse. According to Consumer Reports in May 2005, the APR on current account overdraft protection offered by most banks is between 600% and nearly 800%, while the APR for bad check fees is around 480%. % to 730%. Paying late fees and / or utility reconnection fees can be even worse.
Liberal politicians, who think they know better than all of us how to lead our individual lives, think we would all be better off if we did not have access to payday loans. Although some get into trouble by irresponsibly using payday loans, there are many who use them very responsibly to meet temporary short-term financial needs and pay off the loans in full soon after.
No one will be better served by shutting down payday lenders, certainly not the tens of millions of low-income Americans who need them. In the end, it will only be selfish politicians, who feel better about telling voters they did something about Americans’ financial problems, who will benefit.
The payday lenders are not the predators here, the government seeking to bankrupt them is the problem.