Are We Losing Consumer Choice?
It is more difficult to get a loan today than at any time in recent memory. Financial institutions, including major lenders, have become increasingly risk-averse, raising their loan requirements and essentially preventing thousands of borrowers from obtaining a loan. It seems ill-timed to cut off the few alternatives available to many borrowers.
Protecting citizens from fraud is an important and justified role of government, but restrictions on payday lending ignore the benefits of short-term consumer loan services and their role in the lending market. These loans emerged to meet consumer demand for short-term emergency loans when other sources of financing are unavailable. They are risky but clearly more desirable than the alternative, bounced checks and late fees, which only further damage a blemished credit history.
In a study conducted by the Federal Reserve Bank of New York, researchers found that states with bans on payday lending experience an increase in bounced checks, higher rates of bankruptcy, and more complaints related to collections. Keeping the current regulatory bans in Arizona and Ohio would serve only to further erode the ability of consumers to choose for themselves which lending services are the most appropriate for their needs.
If a lending practice proves fraudulent or exploitive, the market will quickly force out those products. The decision as to whether short-term loans are acceptable should lie in the hands of consumers, not state officials.