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We Don't Need "Payday" Lenders

Now and again, you run into something in which you say, "if this isn't against the law, it ought to be." One of these is payday lenders.

The problem with payday lenders, and other banks, is a 1978 Supreme Court decision that says that lenders are regulated by the state in which they are incorporated, not the state in which they are doing business. So there are a handful of "easy" states that will allow THEIR lenders to run roughshod over everyone else.

Payday lenders often lend money between now and "payday" on the strength of post-dated checks, which would be illegal. So it is possible for the states to at least outlaw specific practices. Sometimes other, more legal forms of collateral are used. But these are very short term loans, made to people who are literally living from paycheck to paycheck. The effective annual interest rates are typically in the TRIPLE digiits.

Payday lenders aren't that great investments, either. Some of them are doing well, but many of them are in trouble. That's because they are in a certifiably stupid business: lending money at high rates (and with a high cost of capital) to people that are stupid enough to borrow (at those high rates) and solvent enough to repay. ("Stupid" and "solvent" don't go well together.) And in order to protect THEMSELVES from bankruptcy, they may have to resort to using "mob" tactics.