Payday Loan Bans – What Happens When They Are Made into Law
What will really happen if payday loans are banned? The consequences could prove wide-ranging and affect multiple stakeholders in the world’s increasingly fragile economy. An article posted on the WashingtonPost.com conjectured that the United States would become a wonderful garden without all the tacky neon signs for payday loans that are common in most areas of the country. The article points out that New York state has always banned payday loans, which begs the obvious question: Why hasn’t all of New York turned into such a beautiful urban landscape? Those same flashing signs are described favorably when referring to the lights of Broadway.
Legal Bans of Payday Loans Could Open the Floodgates to Political Bans of Any Industry
The end of payday loans doesn’t take into account how censorship and political control of free enterprise are key steps toward socialism or communism. The ban doesn’t give disenfranchised people any alternatives for emergency credit, and instead of protecting consumer rights, bans would limit people’s options and force them to turn to other measures in financial emergencies.
Fixing Problems in the Financial World Is Never Simple or Without Consequences
Even a cursory study of the financial markets reveals that experts are worrying about multiple game-changing issues like Brexit, helicopter money, national debts and weak economies abroad. A major change affecting a multibillion dollar industry is sure to inject unintended consequences in this volatile mix that already has investors and business frightened. People need alternatives when they don’t have good credit and access to cash in emergencies, and many desperate people are likely to turn to risky practices such as borrowing from organized crime, pawning treasured family heirlooms or committing minor crimes such as stealing or selling drugs.
One answer to the problems of people in lower socioeconomic classes is raising the minimum wage. The calls for frequent increases in wages will become a common replacement for political activists who opposed the payday lending industry. In New York, where the costs of living are high and payday lending is banned, the political gears are already turning to raise the minimum wage to $15. The NYTimes.com reports that wages will rise to $15 in parts of the state and by 70 cents per year elsewhere over the next five years. California, not to be outdone, has signed into law a bill to raise minimum wages to $15 by 2022 according to a report from USAToday.com.
These changes affect small businesses intensely, so there’s no easy way to predict the long-term consequences of runaway wage hikes throughout the country’s busiest business centers.
Truth in Payday Lending and Political Opportunism
The Washington Post article describing a fairy-tale atmosphere that the author envisioned if payday lending were banned missed a few complications. Payday lenders lose about $790 million a year in fees in New York, but the progressive costs of regular pay raises will cost businesses in the state billions of dollars in increased payroll.
NYDailyNews.com reports that no similar statewide hike of this magnitude has ever been legislated and worries about the consequences of raising wages 11 percent to 66 percent higher than other states, which puts New York’s business community in a weak competitive position in global markets. Democratic presidential hopeful Hillary Clinton favors a national $12 minimum wage with payday lending still in force. There’s no way to measure how much higher that figure would go if payday lending were banned while President Clinton refined her policies.
It would be interesting to conjecture what the United States would look like if political opportunism were banned instead of payday lending, high-calorie foods, trans-fats and other targets of political activists who embrace causes based on how high their poll numbers might rise.
The payday lending industry, which supports truth-in-lending laws, the rule of law and protections of free speech and free enterprise, has even organized associations to fight against censorship, unilateral decisions by the Consumer Protection Financial Bureau and increased government control of business. Economists, journalists, politicians and rank-and-file voters also support payday lending.
There are some abuses by renegades and con artists in every industry, but payday lenders are trying to encourage the highest ethical standards and legal due process while providing a much-needed service that remains popular with about 12 million people who borrow from short-term loan companies each year. An article posted on Newsweek.com found that payday lending markets were competitive and that loan costs had high but fair interest rates based on the economic realities of granting short-term loans to people with poor credit. The article also pointed out that economists disagreed on whether payday loans were helpful or harmful.
The Uncalculated Costs of Banning Payday Lending
Things don’t always fit in neat packages, pithy soundbites and debit-and-credit ledgers. Regulating an industry until it’s forced out-of-business or banning it completely is a dangerous erosion of due process, legal rights and free enterprise. An article posted on Bloomberg.com reports that lending is similar to insurance underwriting in that lenders will change tactics from serving high-risk borrowers to low-risk borrowers if more profit is available and vice versa. These strategies are standard business practices and protected by law, precedent and common sense. Some people actually like flashing neon signs and urban landscapes, but political activists are determined to force people to do what’s good for them regardless of their feelings. Learn more about efforts to ban payday lending at the PersonalMoneyStore.com.