It’s possible, although, payday lenders generally justify their high interest rates by pointing to the high default rates, so they’d have to make a leap of faith . . . Your broader point is well taken, though. It might be that some entity takes up the slack.
In the long term, this is certainly a good thing. In the short term, though, there are going to be some folks crashing and burning. Now, those are the same folks who would have crashed and burned a year from now instead, when their loans caught up to them, but it’s going to look pretty bleak for them to all crash at once right now.
While I applaud the outcome, I can’t help but wonder if there might have been some gentler way to put it in place, with fewer short-term consequences. For instance, one might set up an organization which provides a similar service, but sets aside some of the interest money in an account in the customer’s name, and when that account has accumulated enough, the next “loan” the customer takes out just closes out the account and he doesn’t have to pay it back, and, if he’s learned a bit more about money management meanwhile, might not have to start the cycle again. Given the high default rates, such an enterprise would probably have to be backed by the government, but it might be a good enough societal benefit to justify it.
I don’t know what the tax structure is for lenders. Holding the amount loaned constant, what would be the tax implications of moving all business currently served by (legal) payday lenders to neighborhood loan sharks?
How does eliminating voluntary transactions between consenting parties ‘make things better for the vast majority of us?’
I’m sure all The Little People will be so glad that your enlightened governors are there to make decisions for them. And for you too, I might add.
What’s next on your list of freedoms that you would like to willingly give away to a government official, to ‘make things better for the majority of us?’
They do that here in South Carolina. I don’t know if the payday loan business has restrictions that make it unprofitable. But the car title loan businesses are all over the place.
Oh, please. ALL action by government takes away “freedom” from the people (or some subset of them) in order to provide some perceived benefit to the “whole.” To assert that this is a bad thing for government to do is to assert that we should not have government. :smack:
Which is not to say that this is a good idea. The whole point to politics is to decide which freedoms to give away for what benefits. 
Here is some information on how car title loans work, at least in South Carolina: http://www.scjustice.org/pdfs/TitleLoans.pdf
Here’s the story on the Ohio deal: http://www.nytimes.com/2009/04/16/us/16ohio.html
This reminds me of a discussion in contract law class after studying Williams v. Walker-Thomas Furniture Co..
The dissent is interesting in the case. It is certainly true, I think, that clamping down on those who lend to the poor doesn’t mean they are going to be replaced by people offering loans at low interest rates. The likely outcome is either the loans change form (fees, car title), or are replaced by those less obedient of lawful authority. Doesn’t mean it shouldn’t be done, but it doesn’t necessarily have the desired effect.
If it pushes people into car title loans, the side effects could be very negative, especially in areas of Virginia where public transportation is non-existant and people rely on their cars to get to work. If it reduces the availability of high risk credit, then I imagine you will see more people getting their power shut off.
The problem isn’t only that pay day loan places charged extortionate interest. The deeper part of the problem is that often full time work doesn’t pay a living wage. And that isn’t changed by driving the blood sucking parasites out of business. I bet the pawn shop owners, on the other hand, are celebrating this law. I just don’t know if they are much more “noble.”
I don’t know anyone who has this problem that 1) doesn’t have more kids than they can support, and/or 2) doesn’t buy shiat they can’t afford.
While certainly the root problem is that some folks just don’t make enough money, places like payday loan shops don’t make that root problem better; they make it worse. If someone is in a situation where they’re going to suffer Dire Economic Consequences unless they can get a payday loan, then that just means that they’re going to suffer Even More Dire Economic Consequences, just a year or so further down the road.
Ahh, I see a glimmer of an answer here. We need to find a way to change “next year” to “after the next election” to satisfy the politicians.
This is just going to have to be one of those situations where the stupid are prevented (or at least discouraged) from hurting themselves.
Heck, if it weren’t for the stupid, we’d all have more freedom.
If poor people in Virginia have bills to pay, and not enough money to pay them, and if they’re underserved by traditional banking services, I don’t see how eliminating a source of lending benefits them.
Do we have any figures on how many people use these services responsibly versus how many end up aggravating their situations?
I read the article, but I did not do the math.
I don’t have any figures, though I’m sure plenty of them screw up and take out a loan to pay off another loan. But it shouldn’t matter what the people are doing with their loans. The only thing that should matter is whether the lenders are providing all the necessary information the law requires them to provide and whether they’re engaging in abusive collection practices. If all the Virginia legislature and payday loan opponents focus on is the high APRs, then they’re missing the point.
If it’s about protecting people from themselves, then why doesn’t Virginia get rid of its lottery?
I just don’t understand this mentality. We seem hell bent on ensuring that consumers can’t make decisions on their own. One of the most basic freedoms is the freedom to do things that hurt no one but yourself. It would seem to me that the proper role of regulation is to ensure disclosure of fees and interest rates, preferably in huge unmistakable bold letters, to the clients of these businesses.
The problem is that we can start to take away many minor freedoms in pursuit of better public policy. Eventually we get to a freedom you or I care about and by then it is too late. So let us imagine payday lenders were forced to disclose their APR in 72 point type on all contracts and in two foot letters in every store window. Would you still be in favor of shutting them down? Comparing this to a smoking ban seems misguided at best. Prohibiting smoking in public places is done not to protect the smoker from himself, but to protect other’s from the smoker’s by products. There is no such effect (unless you stretch the analogy to the breaking point) with payday lending.
You act like prohibiting payday lending is some sort of brand new idea, trampling over a previously long-standing right. In fact, payday lending only came about relatively recently, and prohibitions against usury have been the rule, not the exception since at least biblical times.
For a look at the laws, state by state, here’s a clickable map: http://www.paydayloaninfo.org/states.cfm
Here in Massachusetts, for example, the small loan rate is capped at 23%, and I’ve never seen a payday lending office that I can recall.
We have all sorts of consumer protection laws, and as already stated, usury laws go back centuries and centuries. The fact that some states are clamping down on what has been essentially unregulated, predatory lending is in line with these precedents.
My state allows both payday loans, “check cashing” for exorbitant fees, and car title loans. In poorer neighborhoods (like mine – I live in a cheap but edgy, immigrant-heavy area) there are more of these, plus pawn shops, than any other type of business. It’s true that low-cost lending programs are sadly needed, and traditional banks do a piss-poor job of serving the lower class. Letting these usurious business flourish, however, isn’t the answer.
A related legal scam are the tax filing business that “give” you your refund immediately. They are, of course, high-interest, short-term loans, but you can’t convince the target market that they’re a rip-off. I’ve seen interviews on TV where people using these services would much rather get less money NOW than wait a couple of weeks and get their full return. It’s short-term thinking at its worst, but it’s really hard to convince them that waiting would be more beneficial in the long run.
There are those who say that the government should not worry about protecting people from their own stupidity, or at best, ignorance, caveat emptor and all of that. In that case, let’s repeal ALL consumer protection and fair trade laws, and let the market self regulate. That works really well.