Goal should be responsible lending, not a lending crackdown
Despite large problems like a state budget that remains in shambles due to rampant government spending, California legislators are reportedly hard at work to come up what they consider to be a responsible lending approach to payday lending. Unfortunately, they abandon the concept of a self-regulating free market economy by mistaking shackling payday lenders with being responsible. The more legislators squeeze the system in which payday advances are distributed, the more difficult it becomes for quick loan outlets to turn any sort of profit, argues the responsible lending outlet Pay1Day in a recent press release.
Responsible lending means exercising informed choice
A balanced view of America’s free market economy suggests that hyperactivity to ban payday advances does not constitute a move toward responsible lending. The reality is that the facility and expense of such quick loans from payday lenders are much more relative. The recessionary economy and its resulting credit crunch have limited the options for many consumers who need short term credit. Unemployment and underemployment don’t make this crucible any easier to bear. Bills still must be paid; life’s emergencies continue. Legislators who live comfortably on their legislator salaries have proved themselves largely unable to walk in the shoes of their financially modest constituents and understand the need for payday advances. Hence, they don’t see the ill in removing such choices from the short term credit market with overzealous regulation.
Weighing expenses vs. consequences
Pay1Day points out that the bulk of quick loan customers use the product not for impulse purchases, but to help them avoid less desirable financial alternatives. More expensive avenues such as checking overdraft, utility shut off or mortgage default can be avoided if consumers have the option to pursue other forms of short term lending that are available even when credit scores are low. While it is true that the APR on a payday loan can be expensive in a relative sense if other types of bank loans are available, credit-constrained consumers generally don’t qualify for small scale bank loans at ultra-low interest rates.
Where do the charges for payday advances come from?
Contrary to the belief of groups like the Center for Responsible Lending, payday lenders do not charge rates in the neighborhood of 391 percent APR (for a standard two-week loan) simply because they can. Taxes and other legislation create operating expenses that lenders must recoup in order to function. If legislators squeeze harder, most lenders will close their doors and jobs will be lost by the thousands. Consumers who need access to short term credit are hurt in the process.
Thus, Pay1Day suggests that California and other states can maintain price-regulating competition in the market and inform consumers about their lending choices through educational programs. Educated consumers should be allowed to make their own choices. A nanny state that spoon feeds is less than desirable. A government that places heavy restrictions without any real efforts at education is far from a responsible government.
America’s real OK Corral for responsible lending – the mortgage crisis: