Tom Patterson

Payday Mayday

Posted on December 05, 2007 | Author: Tom Patterson
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Representative Marian McClure calls payday lending an "ugly" business and intends to run payday loans out of business.

Like the vast majority of Arizonans, I'm not a payday loan customer. But so long as payday loans are basically a commercial transaction between mutually willing parties, government's first reaction should be to leave them alone.

A typical payday loan is short term and high risk. Someone with an urgent need for cash will borrow, say, $100 for two weeks and pay back $105. That's an annualized interest rate of about 130 percent, which is what policymakers find repugnant.

But the transaction may make sense from the borrower's perspective. He may need the money to repair his car, to keep up on child support payments, or who knows what. His options for loans are limited. Commercial banks aren't interested in his business. Family may be tapped out.

The lenders have offered substantial reforms such as eliminating "rollovers" - loan extensions for an additional fee - and limiting multiple loans per customer. They have created an association to attempt to upgrade their public image.

But McClure is going to the ballot to criminalize payday lending anyway. If the industry is spending money to avoid being legislated out of business, "they must be concerned," she said in the Arizona Capitol Times. Well, no kidding.

Staying out of their hair, since they're harming no one not willingly involved, might be worth considering.

Tom Patterson is chairman of the Goldwater Institute, a former state legislator and emergency room physician. A longer version of this article originally appeared in the East Valley Tribune.

Learn More

East Valley Tribune: Payday loans aren't the state's business

Arizona Republic: Payday-loan stores pledge to spotlight interest rates, terms

Townhall.com: If Only Understood - Payday Loans

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