Comment of the Day
December 23, 2008 | Uncategorized | Comments (2)Any loan can trap people who can’t afford to pay it back in a cycle of debt, Arthur, just as any sale of wine can trap people in a cycle of alcoholism and any sale of desserts can trap people in a cycle of obesity. Nevertheless most people learn to use these things responsibly, if not at the beginning then at least over time as they get bad results from irresponsible use.
There are a million things that people who want to advance their careers or fancy themselves as muckrakers can call for increased regulation on, but apart from situations where products and services are advertised or presented in a dishonest way the fact is we are much better off with freedom of commerce than with more and more laws passed by politicians whose wisdom and honesty are not always matched by their zeal to control.
If you want to help those who get caught in a cycle of debt with payday loans then lobby the government to offer them assistance and do it without criticizing payday lenders, who happen to offer an honest service which has saved many people from terrible jams and which many more utilize to good effect. When people criticize payday lending – by distorting the meaning of the APR and focusing solely on those who misuse the product – it simply means they are looking for someone to step on so they can toot their own horn.
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Nevertheless most people learn to use these things responsibly, if not at the beginning then at least over time as they get bad results from irresponsible use.
Let’s consult the latest Veritec report for Florida. During the course of the previous fiscal year 28.6% of all customers in the state had 12 or more payday loans. 1 in 9 had 18+ transactions during the year; they accounted for 30% of all transactions.
Or let’s go to Oklahoma. 16, 998 people in that state during the latest reporting year had 18+ loans. That means they were indebted to high-rate payday lenders for at least 70% of the year. These customers accounted for more than one-third of all transactions recorded in the state.
Payday lenders don’t have compunctions about extending credit or renewing loans when people are obviously trapped by their debts or misusing the product. They hide behind their free-to-choose ideology, as if the trade in short-term credit was no different than selling loaves of bread. But what works in one market won’t necessarily work in others. A one-size-fits-all strategy makes society stupid.
Fortunately, a new wind is blowing. Recent events have exposed lenders and the regime of deregulated credit. If I was in the loan-shark business, I would be worried.
Well first of all these people are not in debt because of payday lenders. They’re in debt because whether by necessity or poor choice they are spending more than they are earning. They are using payday loans to help them manage their debt, and if payday loans weren’t available they would be in worse shape, getting evicted, losing their job because they can’t get their car repaired, or just paying bounced check fees, credit-card late-payment and overlimit fees, and other fees that would cost considerably more than the fees they are now paying payday lenders.
Second, what percentage of Americans have an obesity problem, Arthur, because of the food which food-company sharks and grocer sharks sell them? If your philosophy comes to govern society there will be a limit on the amount of fat ice cream can contain, you will be limited to four quarts per year and you won’t be able to go from store to store because your purchases will go into a database, and everytime you go to the grocery store the grocer will check the database to make sure not only that you aren’t buying too much unhealthful food but he will also check your income and bank reserves so he can responsibly be sure that you are not purchasing more than you can afford.
Yes, change is coming. It’s been called 1984 and the Brave New World.