Whenever there is a controversial subject you will get a variety of different opinions from many different people. Many times one group will form on one side of the issue, while their opposition forms on the other. I think it is safe to say that payday loans fall into this category. With all the controversy you might wonder what some peoples lives would be like if payday loans were not available to them at all. Better or worse?
On one side of the issue you have the payday loan industry themselves. They are supported by many of their customers who feel the traditional financial industry is not in touch with their needs, or provide services to those that are financially and credit challenged. On the competing side are usually local governments who have the distasteful job of regulating the business. They are cheered on by consumer advocates that try to look out for the poor, unemployed, military families and those that generally live on the fringes of society.
So all the scrutiny is not surprising given the industries growth and the high interest rates charged on payday loans. There is also the much publicized news accounts of those individuals whose repeated renewals of just one payday loan resulted in finance charges that far exceed the original loan. This has resulted in some suggesting interest rate caps as a remedy while others have argued that the industry should be banned altogether.
There have been many studies done on this issue from many different angles. The conclusion when you look at many of the findings together is that the demographic that uses payday loans is better off with them available. This mostly stems from the fact that they have little if any alternatives when they need an influx of fast cash. However, another conclusion shows that these same people are causing harm to themselves if they get caught in a cycle of repeating the same loan over and over.
This leads me to believe that the payday loan industry is helping an underserved market. This group needs the availability of short term credit from time to time, but they also need some protection. The most sensible solution may be to enact some national regulation of the industry that creates continuity in the marketplace, enables the industry to profit, and protects consumers from the potential effects of endless debt.
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