End Onerous Payday Loan Regulations – It’s Supposed to be a Free Market
With the creation of a new federal agency designed to oversee the protection of consumers, economic experts are beginning to consider whether more government oversight is needed. The country may function better by allowing the free market to be free. To this end, it’s time to stop payday loan restrictions now.
The Advantages of a Free Market Economy
Chron confirms that a free market supports the development and selling of goods and services without interference from any kind of central government. Instead of price controls put in place by government officials, a free market permits the relationship between product availability and consumer demand to set prices. A free market environment comes with many advantages, which range from giving business owners and private citizens the opportunity to innovate to letting consumers choose whether a company succeeds or fails.
The Free Market and Payday Loan Lenders
With its reputation for tempting desperate borrowers into “debt traps,” placing limits and regulations on the payday loan industry seems like a good idea. Dr. David Evans, the founder and chairman of Market Platform Dynamics, or MPD, said, “If the Consumer Federal Protection Bureau, or CFPB, is going to stop some unscrupulous payday lenders from tricking people into paying high interest rates to borrow money, I’m all for it.“ He went on to say, “But, what I’m afraid the CFPB is doing is making it tough for people who need to borrow money to get loans.”
While the reasons behind payday loan restrictions often hinge on helping borrowers avoid a continuous cycle of debt, the data indicates that this is not a problem. Research shows that short-term loans are repaid in full within several months 80 percent of the time.
Short-term loan lenders wouldn’t be able to stay in business if borrowers weren’t paying them back, so a business model that relies on people defaulting on their loans doesn’t make sense.
Pymnt.com reports that payday lenders base their fees on the fact that they’re operating in a high-risk market. Lenders must mitigate their borrowing risks. Nathan Groff, the chief government relations manager for Veritec Solutions, said, “Everyday, we see people who are innovating in lending. They say, ‘we’re going to Facebook to use their data points. We’re going to fine-tune our risk metrics.’ And, that’s great – but, at some point, when you strip everything away, the fees have to get somewhat close to the risk the lenders are taking.”
The fees for payday loans are high. In addition, many people wind up in debt to these lenders for a full year, which hardly qualifies as a short-term loan. The harm of this situation is that payday loan borrowers pay more to access funds than the average borrower does. This is especially damaging for those who bring home less than $35,000 a year.
However, when considering the damage that an unpaid utility bill or credit downgrading late payment invoice can do, the higher costs may be worth it. Unpaid utility bills may result in the service being turned off, and when this happens, pricey reactivation fees and deposits are due. The consequences of a credit downgrade can last for years since this situation comes with the penalty of higher interest rates for countless future loans.
Let People Police Themselves
If government agencies let the free market operate as it should, they’ll be giving people the freedom to police themselves. Bad payday lenders are in the market, and if possible, regulators should eliminate them. However, when government agencies consider the entire industry an evil entity that must be destroyed, this situation should concern every citizen who supports the free market economy.
If the CFPB manages to do away with the payday lending industry, it will not take away the need for these types of loans. Because of this, federal regulations against the industry is not a solution. In fact, it may exacerbate the problem. Burdensome restrictions may force many short-term lenders out of business, which would decrease competition. This situation could put borrowers at more risk since they may have to turn to less desirable financing options like pawnshops or even loan sharks.
Does the Country Need a Solution?
An article from OK Politechs says, “True liberty means having the freedom to fail.” America prides itself on embracing a free market economy, so why shouldn’t it exist for every type of business? Let’s stop payday loan restrictions now to ensure that those who need these types of loans continue to have access to them. To read more about the free market and payday loan restrictions, visit the PersonalMoneyStore.com.