Author Claims Bad Credit Loan Regulations Created to ‘Wipe Out Industrty’

Rules and RegulationIn places all over the world, particularly in the United States and the United Kingdom, public officials and bureaucrats are working to institute stringent regulations against the bad credit loan industry. Many of the reforms, either implemented or proposed, include capping interest rates, limiting the number of loans to just four and changing the way businesses collect payments.

The payday loan sector argues, however, that these regulations hurt the industry, and will inevitably cause unwanted harm against the very same people who use personal loans for people with bad credit. One expert, who is not affiliated with the payday loan niche, argues that today’s influx of regulatory reforms are designed to “wipe out the industry” and “limit consumer choice.”

“It’s no secret the government wants their share of the pie, in every niche not just the payday loan niche. They have no problem bullying their way in and trying to squeeze lenders out. Reforms could wipe out the industry but where would that leave us? How will the people who apply for these loans get money? This looks like a strategic move to put lenders under the governments thumb so they get their share said,” Sara Simple.

Victor Joecks, executive vice president of the Nevada Policy Research Institute, published an op-ed in the Las Vegas Review Journal, in which he presents the case that governments are looking to dismantle payday loan businesses and hurt consumers.

Joecks cited the Consumer Financial Protection Bureau (CFPB) and its proposal to impose “crushing new rules” on an industry which he feels is an “easy target.” Despite most borrowers taking out just one or two loans each year, Joecks says the CFPB would cap the number of bad credit loans consumers can take out. He also listed the cap on interest rates, something Joecks says helps the lenders offset default risk.

“The industry is an easy target. Critics have successfully portrayed its work as predatory. They say lenders exploit people in desperate financial straits and charge obscenely high interest rates. But the data don’t support this portrayal,” Joecks opined.

According to the author, half of one percent of all CFPB complaints were concerning payday loans. Payday lenders also rank high in customer satisfaction, citing a survey that found just six percent of payday borrowers were “very dissatisfied.”

“The truth is, payday loans provide a valuable service,” wrote Joecks.

“People with bad credit and inconsistent incomes usually can’t get loans from traditional banks. But they still have bills to pay. A payday loan can help fill that gap, giving people the quick cash they need to, say, pay this month’s electric bill or fill up the tank so they can drive their kids to school.”

He conceded that payday loans shouldn’t be an option for long-term financing. But they are useful in short-term emergencies, especially if a check bounces and then an enormous overdraft charge will be placed on a bank account. He noted a CFPB statistic that found a consumer who overdraws by $24 will face a fee of $34. “That’s the equivalent of a loan with an annual interest rate of 17,000 percent. By comparison, the typical payday loans charges around 400 percent.”

By prohibiting payday loans, low-income households will have to look for cash in much worse places, says Joecks.

In the end, Joecks believes the CFPB’s new bad credit loan initiative would hurt millions of consumers with a valuable alternative source of short-term funding. Moreover, it’s a “condescending intrusion” into consumer choice.

Joecks believes adult consumers should be permitted to handle the finances however they see fit. Remember, a consumer is never coerced into taking out a payday loan akin to how consumers aren’t forced to take out a new credit card. Joecks posits that these products are openly selected on the open market.

“American citizens shouldn’t be treated like children,” Joecks concluded. “If the Consumer Protection Financial Bureau actually wants to help people, it should scrap its proposal to limit payday lending.”

Reactions to the Op-Ed Piece

Not everyone was as supportive of the bad credit loan industry as Joecks is in this op-ed.

A quick glance at the comment section and there are plenty of comments lambasting the business. It should be noted, however, that there are just as many positive comments.
Here are a few of the negative comments:

“No they don’t serve a purpose. The industry preys upon the ignorant. We need to make finance 101 a requirement in schools to educate people on how to avoid getting taken by payday loans. One need only open an account at a a credit union to be eligible for a short term loan at a rate substantially lower than payday loans. If you get a paycheck, you can get a loan.”

“If any industry needs to be wiped out, the payday loan industry is it — until it gets a modicum of decency.”

“There is nothing more valuable to people who cannot afford to pay their bills than a 400% loan.”