Two articles on alternatives to payday loans

The Washington Post has two articles today about payday loans.

First, an opinion piece by Mike Calhoun, the director of the Center for Responsible Lending, is entitled "Think there’s no good alternative to payday loans? Think again." Mr. Calhoun begins:

The Consumer Financial Protection Bureau’s proposed rule requiring payday and car title lenders to assess borrowers’ ability to repay will, by all projections, reduce the number of these loans being made. The question often comes up: What will those consumers who might have taken out a payday or car title loan do instead?

A review of the credit market for households with lower credit scores and the experience of states that have addressed payday lending show that many alternatives are available. They are all far better than the long strings of repeated high-cost loans that trap payday borrowers in unmanageable and ultimately devastating debt.

The full piece is here.

Second, a piece by University of Georgia School of Law professor Mehrsa Baradaran, is entitled "Payday lending isn’t helping the poor. Here’s what might." Professor Mehrsa argues:

[Payday] loans do not make customers better off. Many stay indebted for months or even years and most pay interest rates of between 300 to 2,000 percent. By the time they’ve paid off the loan, they are further in the hole than when they started.

But are these loans an essential service for poor borrowers? Yes. Most people assume that with some education and better money management, the poor would not need such ruinous loans. Thus, the argument goes, it’s fine for a paternalistic state to forbid them to protect the borrowers from their own mistakes. But this view ignores the reality of poverty and all of its sharp edges.

These loans offer liquidity — a financial lifesaver — when those living on the financial edge bump against an unexpected problem. Most of us rely on loans to get by or to get ahead. The poor also need loans, but usually just to stay afloat. So if we are going to regulate them away, the next step has to be providing an alternative.

The full article, including a discussion of alternatives, is here.

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