Mo
Payday lenders are predatory and take advantage of people.
As a commercial banker / financial analyst by training, I don't disagree with the characterization of payday lenders. But getting rid of them, or putting limits on rollovers / number of loans outstanding at any one time would have some serious unintended consequences.
I know the intent is to protect unsuspecting borrowers from their own lack of understanding.
The problem arises in that payday lenders' target market doesn't qualify for credit cards. If they did, they'd use them, as opposed to CheckIntoCash, et. al.
So what happens when you limit by law the number of rollovers or outstanding loans (and the CFPB is about to do just that)? You cut off further credit to someone who can't get it from other legitimate lenders.
Here's a practical example: a borrower wants to roll over a payday loan. But he'***** the limit on the number of times he can do so. So a willing lender is barred by law from continuing a loan to a willing borrower. But the borrower doesn't have the cash to pay off the loan.
So the reg, intended to protect the unsuspecting borrower from himself, actually pushes him into bankruptcy, EVEN THOUGH there's a lender willing to help him avoid that.
Actually, I guess there is an alternative -- loan sharks and bookies. As distasteful as paying 36% APR, it's better than getting kneecapped by Tony Soprano and friends.
Point being, as scuzzy as these guys are, they didn't spring up because the owners wanted to abuse people. They sprang up because there was a demand for them. If the Feds want to eliminate or limit them, they need to think about what will fill the void their well-intended meddling will create.
