Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
1–10 of 71 posts
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#2The profit margin on payday loans is not nearly as good as one would think. I know that there are concerns about allowing people to fall into traps, but the statistics on profit margin make me think that these companies are not predatory. The high interest rate on these loans doesn't go into heaps of profit so much as it reflects the true costs to offer this type of loan.
In some ideal libertarian-ish world, these payday loan shops would still be allowed to exist, but nobody would use them, because they would recognize them as a bad deal. This is not the world we live in.
I'll just link to the google results regarding profit margin, because my first result was from adamsmith.org, and I'm at least trying to present my evidence neutrally.
https://www.google.com/search?q=profit+margin+on+payday+loan...
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#3I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them.
Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quick race to the bottom. For example, payday loans. I would love to make 20+% return on capital. Who wouldn't? And, acting purely as a business-owner, I'm would be required to use every trick, no matter how shady, in order to win. Why? Because I know my competitors will.
Unfortunately, as history repeatedly shows, tricking people is usually the quickest way to make profit. Regulations are necessary, but there should also be continuous effort to decrease the overhead costs without sacrificing the intent.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#4There's demand for these sorts of loans, so if you outlaw them the demand doesn't go away - it moves to the blackmarket. The classic "loan shark", or local guy with cash that will have his goon break your legs if you don't pay it back.
That's fine, we can outlaw and drive it underground, just as we tried with alcohol, and just as we do now with various drugs. Sometimes society would rather pretend demand for some products doesn't exist.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#5I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…
Payday lenders aren't making 20+% for free. The interest rate is high because the risk is high.
In the absence of regulations on interest rates, competition hammers the interest rate down to the lowest it can be before some other venture can provide superior returns.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#6I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…
What do you think about the idea that if someone is charging 20% on a loan and making easy money, you can offer the same service for 15% and take their business?* That is a race to the bottom, but it seems like it would be good for the customer.
* This is essentially what credit unions do with signature loans.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#7I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…
Generally speaking, the golden rule of public policy is that policy begins where markets fail.
The race to the bottom you're describing is a failure of the market to consider for their customers, and that's where regulation steps in.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#8There's demand for these sorts of loans, so if you outlaw them the demand doesn't go away - it moves to the blackmarket. The classic "loan shark", or local guy with cash that will have his goon break your legs if you don't pay it back. That's fine, we can outlaw and drive it underground, just as we tried with alcohol, and just as we do now with various drugs. Sometimes society would rather pretend demand for some pro…
I get that there's demand, but unfortunately the entire industry (see also subprime lending) has such a stench on it from years of fucking people over.
I'm not saying don't make loans to people who can't repay them easily...but I'm also not not saying that.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#9I'm generally not a fan of regulation. But lately, I've been changing my opinion on that. I don't see how we can all play in the economy game without having a set of unambiguous rules and referees to enforce them. Regulations do add overhead, sure, but how else can we prevent companies from acting in ways that are detrimental to society? Capital finds the shortest path to profits, and without rules, it becomes a quic…
Payday lenders aren't making 20+% for free. The interest rate is high because the risk is high. In the absence of regulations on interest rates, competition hammers the interest rate down to the lowest it can be before some other venture can provide superior returns.
You're assuming perfect information in the market. The GP's point is that if there's trickery involved then that assumption doesn't hold. It's not hard to make a hefty profit in excess of risk pricing if you're conning a revolving set of desperate people.
Re: Move to Pull Consumer Protection Rule Heightens Debate over Payday Lending
#10There's demand for these sorts of loans, so if you outlaw them the demand doesn't go away - it moves to the blackmarket. The classic "loan shark", or local guy with cash that will have his goon break your legs if you don't pay it back. That's fine, we can outlaw and drive it underground, just as we tried with alcohol, and just as we do now with various drugs. Sometimes society would rather pretend demand for some pro…
There are far less exploitative options out there for providing this service though. See emerging fintech offerings like: https://www.earnin.com/, https://www.dave.com/. There is also a concept called earned wage access that helps solve this issue and there are a few emerging players in that space as well.
"The invisible hand" isn't perfect and sometimes regulation helps push people towards better options. We don't let anyone provide medical services and assume the market will sort it out, so there is at least a _potential_ argument that the same should be true for financial services.