Putting payday lenders in Wall Street reform: chasing small fish

A Minnow

Why target minnows and ignore the sharks? Image from Wikimedia Commons

Part of the Wall Street reform legislation is provisions governing the practices of payday lenders. An amendment to the recently passed Senate version of the bill, introduced by Senator Kay Hagan (D – NC) would limit any and all consumers to no more than six loans per year and limit interest to 36 percent interest, or 391 percent interest depending on how you do your math.  The amendment was killed.  Though many consumer advocates are calling for the outright abolition of payday lending as an industry, perhaps they are gunning for the wrong targets.

The Hagan amendment on payday lenders fails

According to the Washington Independent, Senator Kay Hagan, a Democrat from North Carolina, introduced an amendment to the financial reform bill that would have placed serious restrictions on payday lenders.  It was killed on the Senate floor.  There have been numerous attempts to corral the industry, though few have been successful at all. Regardless of the Hagan amendment failing, payday loans could be placed under the jurisdiction of the proposed Consumer Financial Protection Agency, which will likely be an office of the Federal Reserve.  The senate bill will still need to be reconciled with the house version.

Why such a small target?

Payday loans are seen as marketing to the poor. But all credit is marketed to people who don’t have a certain amount of money laying around at any given time. The only people who don’t have financial products marketed to them are the people who run the companies that sell them. Though some attempts have been made to shore up credit cards, such as the CARD Act, you’ll notice that same vitriol is not leveled at VISA or MasterCard. You know why? Simple: they have status as institutions.  The average American has more than five credit cards and carries $10,000 in credit card debt.

Did everyone skip Econ?

The reason payday lenders and payday loans exist is supply and demand. Obviously, demand exists, and supply has risen to meet it. Like anything else, if you don’t do anything about demand, supply will remain.  If costs of good and services increase above the rate of inflation, and wages don’t rise accordingly, what did people think was going to happen? That money would trickle down?

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