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Payday lending isn’t necessarily predatory lending, but it can be necessary for the working poor

On my radio program last week, a regular contributor mentioned that a bill to eliminate payday lending had passed the Alabama Senate, and I was surprised.

Having dealt with the issue back when I was in office, I think payday lending gets a bum rap out in the mainstream media. These short term loans are an important part of the financial lending community and are often the only access to credit that some people have.  I also wondered what special interest group is driving an agenda for which the general public nor the so called “poor” is clamoring.

The answer is the Southern Poverty Law Center (SPLC). 
Republican supermajorities do not — or used to not — kowtow to the SPLC.  If there is a more liberal group in the United States, this conservative is not aware of it.  Maybe the legislators have bought into the SPLC propaganda that they are protecting the poor, but by eliminating the only means for credit the poor have? By eliminating the jobs of the 5,000 people in the state who work in the industry?

That doesn’t make sense.

Helping the poor is a noble cause, in the generic sense of the words, but how does eliminating payday loans actually help the poor? How does making it more difficult for someone with limited means and bad credit to get the money they need to make it to the next paycheck help the poor?

This question is the one that made it difficult for me to legislatively pursue the total destruction of the payday lending industry.

If a poor person needs $100 dollars on Wednesday to make it to Friday, where can he get it?  The answer is nowhere … if there is no such thing as short term lending.

These loans are simply too risky and too small for banks or credit unions to handle. If payday loans were workable at a lower interest rate, then someone would be doing it right now.

You don’t have to change the law to do that. Just let capitalism work. I suggest that those who believe they can run a better business model for short term lending get out in the market and do so.  Show us how to help the poor the right way.

What happened to free market Republicans in the Alabama legislature?

There used to be enough to make up an entire caucus. Does the term “free market” mean nothing when the Southern Poverty Law Center says jump?

In Washington, D.C., President Barack Obama tried to crush the payday loan industry, and now Republicans gleefully further Obama’s agenda in Alabama. Regulating a whole sector of the financial services industry out of existence is not the free market.

Another person on the radio show described working at his job and loaning his buddies $20 on Wednesday to help them make it to Friday. On payday they gave him back $25. He called it 20 for 25, and his friends appreciated being able to buy gas and food for those couple of days.  20 for 25 seems reasonable and harmless, but the cost to the borrower is more than is charged in Alabama’s payday lending industry. I know, it’s weird — 20 for 25 did not seem predatory at all.

The working poor will continue to need small cash loans from time to time. That will not change, but we cannot help people by not allowing them to help themselves.

All of our freedoms come with the risk of excess and of getting into trouble. Payday lending is simply another market based, regulated, and lawful financial service that replaced the mob supported loan sharks of days gone by.

My friend, Senator Tom Whatley, who was apparently one of the few willing to talk about the free market on the Senate floor made a great point: the people who cannot get short term loans in Alabama will now get them online, or from people who want more than an interest rate. They want an arm or a leg. Well said, Mr. Whatley.

To help the poor, the legislature should stop helping.

Prior legislation has straightened up the industry, and lawmakers should leave well enough alone. Let the payday lending legislation die a quiet death. It is not needed, and it hurts regular folks who are thankful that they have the option of a short term loan when they need one to make ends meet.

(Image: Alison B./Flickr)

Scott Beason is a former state senator and now hosts a talk show on WYDE 101.1 FM in Birmingham and Huntsville.

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