Comment of the Day
January 26, 2009 | Uncategorized | Comments (2)Rate caps are bad. The government has no business telling independent merchants and service providers how much they can charge for anything. Even some CFSA members charge $25 per hundred in states like Utah, whereas some Internet lenders – many of whom are not offshore but simply operate on the “one-state model” (whereby they advise the consumer that the transaction is governed by the state where they are licensed as if the consumer had come to their office) – charge less.
Internet lending is good for the consumer. It offers convenience, privacy, and because much of the process is automated and overhead costs are less, the product can be offered more cheaply (although I understand the default rate is considerably higher due to scam artists and such). Discriminating consumers can find Internet lenders who charge less than $15 per hundred. Consumer activists should simply steer people to the least expensive companies, which would speed up the balancing of the free market.
But yes, the Federal government should ban state interest rate caps so that payday loans, installment payday loans, and other useful loan products can be offered in all 50 states.
Comments»
Internet lending may be good for the consumer, but no regulation is bad. The average consumer can not tell the difference from a legal and illegal lender. There are many on-line lenders that have set thier business model up in a way that both protects the borrower and lender, but for the average consumers it is difficult to determine. If there were one set of guidelins that established the rate per 100, roll-over procedures and collection procedures, the consumer would save money while the market would open up vastly for legal lenders.
If the government, federal or state, can tell a lender how much he or she can charge, then it can tell every doctor, lawyer and free-lance maid how much he or she can charge as well. I don’t think the wisdom and honesty of politicians can be trusted for them to have that much power over our lives; a free market system is better. Laws against deceipt and dishonesty in commerce are the regulation which is needed; businesses should be required to adequately inform potential customers everything they should know about the goods or services being offered, including, in the case of loans, potential extra charges and collection procedures in case of default.
What we need is better overall principles and less specific regulations, which in too many cases are simply ways for politicians and activists to exercise more power and control. When Crosby Stills & Nash sing “Let a man live his own life; Rules and regulations who needs them,” they may be exaggerating, but they have a point.