Payday Pundit

Tim Miller of Center for Consumer Freedom continues his fight to protect citizens from a “paternalistic” government.  Here’s his piece in the Colorado Springs Gazette in its entirety: 

Payday loans bridge gaps for responsible adults

By TIM MILLER

If you can’t manage your own finances, you should be relieved: Peter Groff wants to do it for you. And all it’ll cost is a little bit of everyone else’s freedom.

Paternalism - the belief that adults do not possess the ability to take care of themselves - is the ideology behind House Bill 1310, which Colorado Senate President Groff is trying to pass into law. By putting incredibly stringent restrictions on the service, HB1310 would effectively ban the practice of short-term “payday” lending.

Once the rhetoric is switched off, payday lending’s usefulness to borrowers in tight spots is pretty easy to understand. The service allows consumers to borrow against a future paycheck, meaning that the car gets an urgent repair, a critical check doesn’t bounce, or the heating bill gets paid. Used responsibly, payday lending can help a borrower stave off financial calamity.

And it’s that idea of responsibility that the bill’s House and Senate sponsors can’t get their heads around. Responsibility is what makes it possible for adults to manage their own finances. It enables people to depend on each other at home, at the office and in society. Take something away because a small minority of adults can’t use it responsibly, and you treat everyone like children.

The injury on top of the insult is that laws against payday lending do serious economic harm to the people most likely to use such a service.

One unintended consequence of payday lending restrictions is that they force would-be borrowers into alternatives that are far more costly. Georgia went one step further than the Colorado Legislature and outlawed the practice - a mistake, as a Federal Reserve Bank of New York study indicates. The study found that bounced-check fees grew by $36 million and Chapter 7 (”no-asset”) bankruptcy filings rose by almost 9 percent after payday lending was banned. Bouncing checks and wrecking one’s credit rating are not superior to paying a lender $15 for a $100 advance on your paycheck.

Another study, from researchers at George Mason University and Colby College, adds further support for payday lending as a useful financial tool. According to the study’s lead researcher, “access to payday loans in their environment, all else fixed, increases a borrower’s probability of financial survival by 31 percent.”

The bill’s House sponsor, Rep. Mark Ferrandino, declared a moral crusade against payday lenders, accusing them of “preying on people living paycheck to paycheck,” while Senate sponsor Groff accused such businesses of “enriching themselves on the backs of Colorado’s most vulnerable citizens.”

But who’s exploiting Coloradans here? Is it the businesses helping adults bridge temporary gaps in their finances or the politicians trotting out the poor to score a political victory?

Let’s leave aside the economic arguments. The message sent by the Legislature to the public is far more important. By voting for HB1310, Colorado’s lawmakers would declare that consumers capable of opening a checking account can’t act like adults when it comes to managing a three-figure loan.

This lesson from government will only erode personal responsibility, to the detriment of a healthy society.

There’s no end to the list of things lawmakers could take away from everyone because some people misuse them - cars, guns and power tools come to mind. Why stop with payday lending?

Tim Miller is the communications director at the Center for Consumer Freedom, a nonprofit coalition of restaurants, food companies and consumers working together to promote personal responsibility and protect consumer choices.