Should Payday Loans Be Outlawed or RegulatedThis is a funny question because most people are split on whether they think payday loans should be outlawed or regulated. Some view it as a type of Big Brother control over adults making adult decisions, while others feel that there needs to be some form of consumer protection.
Payday lenders try to make the case that they are helping people avoid NSF fees and late fees from banks and bills. But lawmakers try to make the case that they are predatory lenders that exploit consumers that are down on their luck or having a hard time financially. They can’t both be right, but depending on how you look at it they make their point. But the real answer lies somewhere in the middle of the two extremes, with payday loans being a sort of necessary evil.
Some states have banned payday loans, while other states impose heavy regulations that dictate everything a lender can do, down to the fine details of how much they can lend, how many loans they can issue to each person, when the loans are due back, what sort of late fees can be charged, whether or not they can do rollovers, and even what sort of documents a person must show in order to get a loan in the first place. In these states people should be less mad at payday lenders, and more mad at the state laws that let them do what they do, because in many instances they’re just following the laws.
Should Payday Loans Be Outlawed or Regulated? Answer: Neither
It’s easy to make a villain out of payday lenders, and we’ve gone as far as saying that they’re a scourge to humanity, but at the same time you have to let the economy sort itself out. There doesn’t need to be a witch hunt against them, and they only exist because people use them. People wouldn’t use them if they didn’t feel the need to, so they must be serving a need. The rates may be high, but if people refused to pay them, they would go down.
That’s why you should’t point the finger at payday lenders as the problem. They say that three fingers point back at you when you point, and it’s really people mismanaging their money that causes a lot of the problem. These loans are often not very big in the grand scheme of things, and therefore if people just had a savings account with $1000 a lot of these problems wouldn’t even exist.
The problem really lies in the victim mentality that many people have that end up needing payday loans. Often they lament that “stuff happens” to them, and this is just another example of them being kicked while they’re down. Rather than take responsibility for their lack of financial soundness, they look to other external reasons why they’re being taken advantage of. Payday loans are a perfect target.
Seeing It In Action
Now don’t get us wrong, we’re not fans of payday loans by any stretch of the imagination, and we advocate doing everything in your power not to get one in the first place. But shutting them down or regulating them in order to protect people from being taken advantage of by them is a little too far. In states where payday loans are unregulated they are subject more to market factors and supply and demand. This gives the lender as well as the customer more wiggle room as far as what sort of terms and conditions they can reach, and what kind of loan amounts can be given.
In states where payday loans are outlawed you’ve got people crossing state lines in order to get a loan, or turning to the Internet to get online loans. So really, you’re not doing anyone any favors by outlawing payday loans or heavily regulating them. It just forces people to seek out less regulated loans, with lousier rates, and stricter terms.
If you want payday loans to go away, don’t use them. If more and more people stop using them, they’ll be forced to change the way they do business, or risk going out of business completely.