Payday Regulation

Why Payday Loan Lenders Want Regulation Too

A common misconception of payday loan lenders is that they operate on the fringes of the law, hiding behind legal obscurities and small print in order to ensnare people with credit they cannot afford to pay back. While there’s no denying that a few irresponsible lenders exist, this is a gross misrepresentation when applied to the industry as a whole.

Putting Micro Loans into Perspective

No matter which way you paint them, payday loan companies are a frequently used service by thousands (if not millions) of Americans. This is simply because they offer a unique service which – when not abused – provides very real financial help when there’s nowhere else to turn.

The convenience aspect, in that fast short-term credit is available with no more than a few clicks or a phone call, is something which can’t be written off. Similarly, they offer a helping hand to those who find themselves struggling to get credit elsewhere; both of these services are lacking in traditional banks. If these services weren’t valued and used by struggling workers up and down the country, the short-term credit industry simply wouldn’t exist.

Protection on Both Sides

There are a number of reasons why payday loan companies have no desire or motivation to act outside of the law, or even recklessly from within it. Irresponsible borrowing is as much part of the equation as irresponsible lending, and payday loan companies are keen to avoid becoming victims of this. Of course, it would be silly to assume that debt spirals don’t exist (often at no fault of the borrower), so having regulatory framework in place which facilitates an amicable solution is beneficial to both parties.

In addition, we cannot ignore the plain fact that payday loan providers operate a business and need to make money in order to survive. As such, they’re as keen as anyone to make sure their business is protected under law, and are happy to oblige with regulations in order to facilitate that.

But in this business sense, they’re an important part of the credit industry in providing a niche solution to a very specific financial problem, albeit one which is faced by many Americans. This is a service which larger banks are too afraid and reluctant to offer; that does not, however, make them exempt from irresponsible lending themselves. In fact, the type of ‘safe’ lending which resulted in the recent global financial crisis was offered in far more deceptive and dishonest terms than any credit given by a payday loan lender.

Comparing Apples and Oranges

And while critics often point to fees generated by high APRs, the other side of the coin is only ever pointed out by payday loan lenders: in real monetary terms, the actual price tag of a micro loan is comparable (if not lower) than that of charges on a traditional loan over a longer term. The fact that payday loans should be used in the manner intended is also made abundantly clear to borrowers before any credit is offered.

Additionally, payday loan lenders fully recognize that loan sharking of any sort – illegal or otherwise – does nobody any favors; neither the individual, their business nor the economy as a whole. It’s the responsibility of all credit providers to work within state legislature and help improve regulatio…

…Otherwise everyone loses.