The Diane Reams show was whining about pay day lenders this morning. Lender's are accused of making very high cost short term loans to borrowers who cannot actually pay off the loan off, they just keep rolling it over, at horrible rates of interest, and get skinned.
Elizabeth Warren's Consumer Financial Protection Bureau wants to increase paperwork, and make the lender learn the borrowers income , expenses, and calculate his chances of repaying the loan. Does not sound very effective to me, although it will furnish work for bureaucrats.
They used to have laws against usury, usually defined as loans at 35% per year or worse. The payday lenders are charging more like 350% per year, which is really really bad. Usury laws used to be a business of state law. I understand that the payday lenders have managed to get usury laws repealed, or watered down in many states to allow them to operate. The payday lenders claim that they cannot do business at 35% and allowing the really poverty stricken access to loans is a social good.
I'm thinking that an old fashioned usury law, criminalizing doing loans at more than 35% would clean up the payday lender situation. It would deny credit to people on the bottom, no income, no assets, no job. These people are not good credit risks, and mostly don't have the money to pay off a payday loan. I think it's better for such people to do with out, rather than lend them money that they will be unable to repay.
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