An cogent and well-written piece.
The Nanny State Says No to Payday Loans - The Foundation for Economic Education: In Brief: "Last year North Carolina became the first state to ban “payday lending.” Payday loans are small short-term loans to provide workers with cash until their next paycheck. The cost is high, reflecting both a substantial risk of nonpayment and the high overhead costs of handling many little transactions. I wouldn’t borrow money that way, but there is enough demand to support thousands of payday-lending stores across the nation, making several million loans per year.
But not in North Carolina.
Pointing to the high cost of borrowing money that way, a coalition of groups claiming to represent the poor stampeded the North Carolina General Assembly into putting all the payday-lending firms out of business. The only reason I’m writing about this now is that the North Carolina Office of the Commissioner of Banks recently felt the need to justify that action with the release of a study purporting to demonstrate that the politicians did the right thing because payday lending “is not missed.” The preposterous lack of logic in this whole exercise cannot pass without comment.
Before we look at the defense that has been given for this nanny-state dictate, we should consider what I call Sowell’s Axiom: You can’t make people better off by taking away options. (It’s named for the economist Thomas Sowell, who first drove this point home to me many years ago.)"
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Thursday, November 29, 2007
The Nanny State Says No to Payday Loans
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1 comments:
Interesting post. I thought you may be interested in the following LTE published in NC's News & Observer.
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Conclusions reached in the North Carolina Commissioner of Banks’ survey to determine how consumers fared without the option of payday loans do not match the actual findings. Nor do they represent the experiences of the hundreds of thousands of North Carolinians who used payday advances to address short-term credit needs.
The majority of people surveyed had never used a payday loan or even experienced a financial hardship in the previous three years. Because they never used or needed the product in the first place, it’s logical that they did not miss it when it was gone.
Only 23 of the 401 surveyed were former payday loan customers. Of those, only five said that prohibiting payday lending has had a positive effect on their household.
In fact, the survey demonstrates a strong demand for credit to cover small, unexpected expenses between paydays. Many consumers don’t have savings, friends, family or a church from which to borrow. The elimination of payday loans in North Carolina did nothing about the demand and forced consumers to substitute payday loans with costly, less desirable and even dangerous options.
When asked how they handled their most recent financial crisis, the most frequent response was “did not pay/paid the expense late.” Other telling responses included “bounced checks/used overdraft” and “used a credit card/cash advance.” Considering the fees of those products can be double that of a payday loan, a payday loan may have been a better option for those consumers.
According to the survey, of those who chose not to pay a bill, sixty percent faced costly or damaging consequences. Ten percent said they “had utilities disconnected, went without a prescription medication, or had a damaged credit rating.” The remaining fifty percent incurred late fees and charges, with some respondents saying their “bill was turned over to a collection agency or that they faced repossession or bankruptcy.” The option of a payday loan could have prevented these negative outcomes.
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