There are two sides to every coin, and it’s impossible to get a full picture without looking at both sides of a story. These days, those who talk about the companies who provide payday loans seem to fall into one of two camps: one side, with pitchforks and blazing torches wants to run them all out of town, while the other side seems to have a love/hate relationship with them that just doesn’t ever seem to go away.
Several states have passed legislation in recent months either outright banning or severely restricting payday loans. But why? Whose job is it to protect the consumer? The lender? The government? Or the consumer himself? Legal payday loans in Arizona. There may be no good answer, and for certain there’s no perfect answer to the question. On the one hand, even business should have some sense of moral obligation not to take undue advantage of consumers. And many would argue that rates that amount to 400% APR are certainly taking advantage of consumers.
On the other hand, borrowers who find themselves in a hard spot, with no money to pay for a needed bill and credit so bad even mom and dad won’t float them a loan have few other places to turn. And let’s face it, most of us have been in a tight spot once in a while, and needed some money before payday.
So, where does the government fit in? In some cases, state governments have decided that the payday loan industry is so bad, and charges such exorbitant rates that it needs to be shut down entirely. New Mexico is a great example. But is it helping?
These lenders still manage to find ways to lend money out at extreme interest rates. The only real difference is they use things like a car title as collateral instead of a check that lender and borrower both know would bounce over the Empire State Building if it were ever actually cashed.
Other states have gone to great lengths to make sure that borrowers are at least educated about the interest they are paying and given ways to get out of the hole if they find themselves in too deep. In Michigan, for example, borrowers have the right to request three month terms, in which they have three months, rather than until next payday, to pay off their loan in Pennsylvania.
There’s no perfect answer here. If you eliminate the payday lenders, borrowers find other (and sometimes worse) ways to borrow money. Or they do without loan money when they genuinely need it. Maybe the best answer would be if we could have a payday loan company offer 0% interest loans. No takers? Oh well, it was worth a shot.