Payday Loan

Every successful business venture has its critics. Payday loan vendors are no exception. The most common criticism of the payday loan industry is based in the assumption that all payday loan lenders are crooks simply because there is the possibility of their preying on desperate individuals to become hooked to continual dependence on payday loans. Let’s look at the basic structure of payday lending, the reasons why continued dependence on these types of loans is possible, and analyze where restrictions should properly be placed.

Briefly, payday loans are offered to borrowers on short-term, fee-based schedules with the ability to roll over the loan each week if obligations are not met. This roll over option is one of the reasons critics tend to pounce on the payday loan lenders. The other regards interest rate levels. Some payday lenders can take advantage of borrowers with high interest rates (fees) on their loans. The regulatory nature of our free-market economy has less impact when consumers are desperate, according to the critics, and this assumption has truth to it. There is the possibility of abuse in the payday loan industry because desire for the product can be, by nature, abnormally high.

A few legislatures in U.S. States have determined to hear or pass bills that attempt to outlaw the services provided by payday lenders to regulate or eliminate excessive debt abuse. These bills target the payday loan industry because of the aforementioned possibilities of abuse. But where does the full responsibility for this potential abuse really lie? Certainly a few of the following considerations are useful for legislatures and the public alike, when considering how to avoid the pitfalls of excessive debt. Any regulatory legislation against businesses should consider these thoughts before being passed.

Firstly, the accusation is made that payday lenders can prey on desperate individuals. However, the argument is usually accompanied by the very point that destroys it: the desperation is sometimes based on consumer’s desires for the unnecessary. The borrowers in question are already addicted to excessive consumer spending before they become dependent on payday loans to fuel their habit. The question remains, are there responsible consumers for whom payday loans offer an important service? The answer is yes. It can be clearly seen that the responsibility for excessive debt lies more squarely on the shoulders of irresponsible consumers. Payday lenders can help by attempting to restrict their lending to such consumers. However, it is still a choice for payday lenders to accept the risks associated with spend-a-holics who may at some point default on their loans. It is certainly an ethical question for legislatures on whether or not they should restrict payday lenders from being able to make such a choice for themselves.

It is unfortunate that some consumers gamble and speculate as to whether or not they will have enough money to cover their payday loan, and then provide deceitful information about their income to lenders in order to secure the loan. Most payday lending facilities, and even the online stores, have restrictions in place that require proper notifications that this temporary service will indeed be temporary. The high costs of defaulting or needing to roll over or flip a loan are meant as deterrents to such practices, which can turn into abuse on the part of the consumer. Because their abuses spell higher profits for the lender, legislatures have become concerned. However, it would be interesting to note how many of these legislatures condone or sponsor State-run lotteries and gambling institutions, which unabashedly prey on desperate or addicted individuals as their main business model. It is necessary to note that the potential for lender greediness does not constitute its existence, especially in an industry that publicly condemns the consumer abuses that lead to the problems noted. Gambling, on the other hand, is not ashamed of its association with undermining good financial practices. Even if the potential for high returns from fees assessed for consumer mistakes leads some in the payday loan industry to be greedy, it is not a formula for making all of them that way.