After heavy lobbying from both sides, the Washington legislature has struck a compromise bill on payday loans. While we at Check City strongly feel that the industry is self-regulating, we appreciate the legislature for having the sense to not put payday lenders out of business.
In other states, initiatives have been proposed to cap interest rates and effectively shut down payday loans in their states. Consumer advocacy groups were pushing for the same in Washington. But lawmakers saw through the lie that payday loans are predatory in nature.
So just what was the compromise? The bill limits a loan to 30% of a borrowers monthly income or $700, whichever is less. At Check City, first time borrowers can only borrow up to 35% of their monthly income. So that part makes sense, even if it is a little too low.
The bill also prohibits borrowers from having multiple payday loans at once. While this may protect ignorant and irresponsible borrowers from self-destructive behavior, it is very limiting on those who are responsible borrowers.
The bill also creates an installment payment plan for borrowers who default on their payment. Customers would have up to 90 days to pay off a loan of $400 or less, and 180 days to pay off a loan of more than $400. The bill is getting lukewarm responses from both sides thus far.
The point remains, regulating the industry in this way may protect the bad borrowers from making bad decisions, but it limits the responsible borrowers from taking advantage of all the short-term credit that can be available to them.
If someone dies from inhaling paint fumes because they painted the garage without any ventilation,do we then ban the sale of paint? Do we limit how much paint people can buy so that they cannot inhale a lethal amount? Do we require safety masks to be purchased with all paint? Where do we draw the line?
Apparently government thinks it is their role to stop consumers from doing something potentially dangerous before they do it. Running into a burning building is dangerous,but fire fighters are trained to do it. Feeding alligators in a zoo can be dangerous, but trained professionals handle it.
The point is you don’t just going around prohibiting people from doing things that could harm them. There’s a lot of people who understand the risks and know how things work and are in essence the “trained” professionals. Payday loans are used by countless responsible borrowers who use them because they need them.
The foolish few who abuse payday loans and borrow too much are always going to exist. Do what you want to regulate payday loans, someone will still do something stupid and blame it on the loan, not their own ignorance.
Consumers should be educated on how to properly use payday loans rather than be told what to do and dictated to. Many responsible borrowers are not going to be able to use payday loans how they need if the industry keeps getting slapped with more and more regulations.
