Payday Loans in New Hampshire: Competition is the Solution

Only looking out for their bottom line?

Payday loans may be on their way out in New Hampshire, and while a new personal credit line product may step in to fill the gap for consumers who genuinely need the product, it may or may not receive approval from the FDIC. This absence of competition will hurt consumers.

A recent study by East Carolina University economist Mark A. Fusaro showed that regular checking overdraft is ridiculously expensive

A person who has a $3 overdraft that is outstanding for one day pays an implicit interest rate of 260,245 percent.

Interestingly, banks play an important part in the creation of payday loans. The Bank of Italy opened in San Francisco to serve those who went unserved by larger banks. Ironically, this upstart company went on to become Bank of America, one of many megabanks that oppose to competition no fax payday loan companies offer them.

This is why consumers turn to payday loans

Since banks no longer offer small-scale consumer loans – let’s say $100 or $200 to prop up your budget during a cash emergency before payday – payday loan companies have provided the service. As they have been successful in this endeavor – Kennedy notes the recent Community Financial Service Association (CFSA) estimate that there are about 22,000 payday loan stores in the U.S. – banks have been keen to step back in and reclaim the business that they once believed wasn’t “good for business.”

The impact of legislation catering to banks’ desires for profit will be devastating. Payday loan companies will be forced to close once unreasonable rate caps are in place. People will lose jobs, consumers will look to other less-regulated sources for short-term cash assistance and the economy as a whole will suffer thanks to a lack of competition in the market. Banks will then have no incentive to offer better products or curb extortionist overdraft fees.

The Federal Reserve is on the side of payday loans

Is not the Federal Reserve a national money authority in America? They have released reports that not only show that no fax payday loans fail to meet the definition of “predatory lending,” but that when states ban payday loans as New Hampshire is headed toward, there are mostly negative effects. Studies from academia like this further corroborate this point.

Ms. Kennedy’s ideas could be very effective at addressing this problem. First, she suggests that exorbitant fees be curbed. She believes that banks should return to an old practice where there was a minimum dollar amount necessary to trigger overdraft fees. It was not uncommon that if a customer overdrafted less than $15, fees would not be charged. In addition, she believes New Hampshire offer more affordable health care and give raises that keep pace with inflation. She also feels that making basic financial life skills a part of regular school curriculum will help immensely. Payday loans aren’t the problem, but the competition they afford is part of the solution.