Payday

Virginia blog Leesburg Tomorrow is complaining about FreedomWorks’ support for payday lenders in Virginia.

[I]n effect it is the special interests of payday lenders who are out to take away your financial livelihood. Remember, this is an industry which has made up to $5,000 on a $300 loan off of a low-income warehouse worker, thanks to the loan being rolled over every payday for five years. It is the practice of biweekly loan rollover that the compromise bill in the Assembly seeks to stop, and that is the element of the legislation the payday lending industry wants to kill.

Individuals have many excellent financial options, without resorting to payday loans.

So, because of a few cases in which an individual didn’t pay back a loan in a timely fashion, and thus had to pay the agreed-upon fees for non-repayment, the entire service should be outlawed? Look, payday loans aren’t a great option for everyone, but sometimes they’re the best option available.

Even the "evidence" provided by LT makes the case for me. The link for "excellent financial options" talks mainly about credit cards and bank loans. But payday lending services are used heavily by people who, because of their credit or financial history, can’t get either. Not everyone has the option to get an easy, low-rate loan. Legislators shouldn’t try to use the law to take other options away, leaving them with even worse options — like not paying bills entirely or bouncing checks. (Fees on bounced checks, for example, typically result in APR’s of about 2,800% — far, far higher than the 390% average APR of a payday loan.) The end of the linked article even suggests that payday loans may, in some cases, be an option for certain people, and that the trick is in taking responsibility for understanding how the loan works and how one’s finances are managed.

More to the point, the existence of unregulated payday loans actually seems to improve credit stability. A staffer from the Federal Reserve Bank of New York looked at the industry and found first that the practice cannot reasonably labeled "predatory," and, even more importantly, that in states with unregulated payday loan industries, households with unstable incomes are actually less likely to have missed loan payments.

Not that I expect any of this to stop the braying about the evils of payday lenders.