More choice is better!
April 30, 2009 | federal legislation, industry, positive media coverage | Comments (0)A terrific op-ed today in the Financial Times (registration required) by two economists who warn Congress about overreaching on payday lending legislation:
So what should policymakers do? The evidence suggests that they should approach the problem by improving the consumer decision-making environment – the “decision architecture” – rather than by bringing in the wrecking ball of an interest-rate cap that would in effect drive payday lenders out of business.
First, a cap would surely deprive sensible but distressed consumers of the ability to make productive “investments” in job retention and family stability. Second, a cap will almost as surely have unintended consequences. For example, in a recent study one of us found evidence that borrowers shut out of the payday loan market in Oregon turned to alternative sources of liquidity that can be even more expensive (such as bank overdrafts and paying bills late).
Restricting supply does not restrict demand. While the wrecking ball may hit payday lenders, history suggests that other credit providers – from banks to utilities to loan sharks – will emerge from the destruction with ways to provide even more expensive loans.
Exactly.
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