"First they ignore you, then they ridicule you, then they fight you, then you win." -- Mahatma Gandhi

Will Big Banks Fill The Payday Loan Gap?

February 28th, 2012 by mopns · No Comments

The nanny staters are at it again! This time they want to protect us from the payday loan industry by placing an initiative on the ballot in November to cap interest on these short term loans. Look, we all want to pay the lowest interest we can on our loans, but it’s a fact of life and economics that if you’re considered a high risk, you’ll pay a rate that is commensurate with that perceived risk.  The proponents of the ballot initiative will tell you that this is a question of race and taking advantage of people in a less than ideal economic situation. It’s not of course but we can expect this issue to be demagogued to death.

We have one question for these nanny staters? Where will payday loan clients go when these businesses are forced out of business? Down to the local Bank of America, US  Bank, or Commerce Bank? We all know that these institutions won’t make very short term, low dollar amount loans to these people. Where will they go? The Missouri Record has an idea:

It is worth seriously considering the implications of a black market. Surely, consumers who need short-term emergency finance in the status quo are often desperate, and will seek out desperate solutions. Where legal means of satisfying their desires fail, they will turn to a black market. We know this from our prior experiments with Prohibitionist policies, particularly alcohol prohibition.

What will the effect of this black market be? We don’t know, but it might be a fair guess that mafia loan sharks might emerge, tempted by the lure of black market profit margins. Worse, desperate consumers will decide that the law does not meet their needs and make the conscious decision to disregard the law, seeking out providers of black market financing. Certainly, all the problems that consumers face in the status quo payday lenders can only be worse in a black market, and injured parties may be more unwilling to seek redress through legal processes. Read more…

Related:

Political Fix Gov. Nixon’s former administration chief gets first lobbying client: payday loan group

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