Banning payday advance loans is not a good idea

Unemployment line

A ban on payday advance loans would only add more to the unemployment line. Image from Wikimedia Commons.

There are a lot of people who would like to ban any and all payday advance loans. Social crusades, no matter how noble the impulse, almost always have consequences that are worse than the original issue. Banning cash advance lending will not have the positive effects that people think. More checks get bounced and overdraft fees assessed. A nationwide ban on payday lending would have other disastrous economic effects as well.

Payday lenders create jobs

Payday lending as an industry, in 2007, employed more than 77,000 in-store workers and created more than $10 billion of the GDP of the U.S. Payday lenders paid more than $2.6 billion in taxes (local, state and federal), and on average, employed at least three people per store. Payday lenders paid $2.9 billion in wages, averaging out to $25,521 per year, per store employee, excluding benefits, which more than 75 percent of payday loan store employees received from their employers. A total ban on payday advance loans would be a disaster for an already beleaguered labor market.

Bans have negative effects

Studies have shown that bans on credit like short term loans and personal loans do more harm than good. One study of bans found that in Oregon and Georgia, consumers bounced more checks after the payday lending ban than before it. The study, by Morgan and Strain, also found that more filings for Chapter 7 bankruptcy were filed in areas where payday lending was banned. Bank overdraft fees can add up to far more in interest than any cash advance or payday loan. Bear in mind that Bank of America, one of the largest banks in the world, charges $35 per overdraft. The average person also has up to 12 overdrafts per year.

Better off with payday loans

Humans have a habit of finding ways to satisfy demand. Payday loans create jobs, and keep people from bouncing checks and overdrafting accounts. They also keep real criminal loan sharks out of a job. You can read more in the payday loan facts and statistical data report on Personal Money Store.

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