Government Regulations and PayDay Lenders

A payday loan is a type of short-term borrowing where a lender will extend credit at a very high-interest rate. Its principal is typically a portion of a borrower’s next paycheck. Various laws have been set up over the years to manage the high fees and rates. Consumers are aware of their own budget constraints i.e the limit of the opportunity set—every single imaginable blend of consumption that somebody can bear given the costs of goods and income/salary. Only the individual in need understands his/her real situation, needs, and constraints, hence consumers should be free to choose to borrow payday loans if wanted/needed. Consumers should be given the freedom to decide what they want instead of what a group(s) thinks they ought to want.

Instead of restricting or eliminating payday lending markets through regulation, policymakers should seek to open them up to the competition by repealing payday lending bans and regulations. State governments should remove prohibitions on payday lending, interest rate/fee caps, and limits on the number of loans or the frequency with which they may be taken out. Local governments should repeal constraints on business practices and other restrictive zoning. The federal government should similarly repeal its laws regarding payday lending and remove the authority of the Consumer Financial Protection Bureau to pile even more regulations on the industry.

Consumers have already rendered their verdict: after appropriate cost and benefit analysis, after considering their budget constraint, they believe they benefit from payday loans, so let them decide about their own path forward. They have considered all options available post which they have decided to pay for high rates. 'If banks and other licensed providers are not able to offer short-term credit, consumers will be forced to meet their needs through 'informal' sources of funds."

Works Cited

Sweet, Ken. “Financial Watchdog to Gut Most of Its Payday Lending Rules.” AP NEWS, Associated Press, 6 Feb. 2019, apnews.com/2a095cc99a07432aba3f62bfb6bfe47d.

BUNCHrbunch@idahopress.com, RILEY. “Planned Consumer Protection Rule against Payday Lenders Barred by Feds.” Idaho Press, 7 Mar. 2019,

www.idahopress.com/news/local/planned-consumer-protection-rule-against-payday-lenders-barred-by-feds/article_bb42cbf8-9086-5fdf-b20e-870f970023ae.html.