Banking Law

In these days of economic peril, when unemployment is high and credit is as scarce as it is critical, what can we count on our elected officials to do? You guessed it: destroy jobs and limit access to credit by those who most need it.

In Colorado, Democrats who were swept into power in the national "anybody-who's-not-George-Bush" phenomenon of 2008, appear to be bound and determined to make payday loans an impossible dream for the low-income, economically distressed borrowers for whom this admittedly expensive form of credit is often the only form of credit to which they have access.

House Bill 1351, sponsored by Rep. Mark Ferrandino, D-Denver, would limit the amount of interest that payday lenders can make off of loans. It was approved on a 7-4 vote by the House Judiciary Committee, with Democrats backing it and Republicans opposing it, and is headed next for debate on the House floor.

[...]

HB 1351 originally proposed capping the annual percentage rate on each loan at 36 percent. However, Ferrandino amended the bill Thursday to increase that number to 45 percent APR and added a provision allowing a loan-origination fee of $10 per $100 lent for the first loan made to a person in any 12-month period.

The changes came after payday lenders, who made more than $566 million in loans in 2008, complained that the reduction in profits they would be able to make would shut down many of their businesses and put thousands of people out of work during an economic downturn.

[...]

"If people are using this responsibly for short-term loans, they?re making close to what they're making before," Ferrandino said.

However, Rep. Steve King, R-Grand Junction, said that without that income on future loans, lenders will lose large amounts of money and be forced to shut their doors.

"We're talking about $1.75 on a $100 loan," King said of the change from 36 percent to 45 percent annual interest that lenders can charge. "It's still going to kill jobs. It's still going to cause businesses to go out of business."

As I've said many, many times over the years I've been boring readers of this blog, I'm no big fan of payday lending. However, I'm even less of a fan of the guys who replace payday lenders when payday loans are outlawed by state law. They have names like "Guido" and "The Lip," and their collection methods are distressingly "robust." My feelings on the issue mirror those of University of Texas-Arlington Economics Professor Roger Meiners, who I quoted last year on the subject.

The payday loan market is highly competitive and provides a needed service primarily for low-income people. Just let those folks try getting an instant loan from Citibank for $200 for one month. If [a proposed effective ban on payday lending] is enacted, it will be back to thugs serving the low-income borrower market. That's a "reform"?