There is no shortage of government organizations, individuals or consumer advocate groups that seem to have it out for payday loans. These folks will go out of their way to tell people about how much they hate payday loans and other short term consumer loans. They’ll even say that ‘everyone’ hates them, without taking into consideration the 10 to 12 million people who take out these loans every year. We should not be surprised to find out that the Consumer Financial Protection Bureau is on a mission to destroy the payday lending industry.
What is not getting brought up in discussions about the CFPB’s new payday lending regulations, however, is the fact that this country was not founded upon, nor has it prospered because of banning things that some people may not like. This is not a hallmark of a free society or one that has faith in the free market. We may feel that some industries are harmful, or even distasteful, but that doesn’t mean that we usurp the rights of our fellow Americans to do business with these industries. It’s one thing to make laws that ban pollution, but it’s a whole different ball of wax to take away consumers’ rights to get access to short term lines of credit, regardless of how one might personally feel about the payday lending industry.
If plans go through to make the new rules from the CFPB official, those new rules would effectively gut the payday lending industry. But where does the justification for these actions come from? There is no hard evidence of anyone getting ripped off by payday lenders, even though they charge fees for their services. The fact of the matter is that payday lenders, even if some people perceive their loan fees to be too expensive, are not raking in a larger return on their capital than any other companies that are doing business in the consumer financial industry.
It is expensive for payday lenders to make the loans that they provide. And since a lot of people wish to take out these loans, those borrowers must pay for the services they receive in such a way to allow the lending companies to remain in business. So what? Do we ban mansions because they are so expensive? Do we eliminate the luxury automobile market because their cars cost what we believe to be “too much”? We are free to think that people are crazy for forking out a ton of money for these types of luxuries, but that does not give us the right to ban these industries or cry out for regulations that would make it impossible for the companies that sell these types of things to exist.
The only way to really handle these types of situations is to let competition do its thing. Opponents of payday loans and other short term, alternative financial products may not like the fact that we still operate under free market principles, but we do. Banning loans that people need desperately is not a solution. Allowing competition to arise from within the market and from other sources is the best way to ensure that consumers have choices and that they can get the best perceived value for the money they spend on loan fees.
Whether you are a conservative, liberal or somewhere in the middle, you have to agree that big government has no business in over-regulating a viable, legitimate industry to the point that it is impossible for said industry to remain in business. Doing so is unfair, it ignores the real needs of millions of American consumers and is no way to treat the people who rely on these types of loans when they are in need of emergency funds for unexpected expenses.