Okay, it’s official. Some state legislators are saying, out loud, in actual words, that the government has an obligation to protect us from ourselves.

The subject is the payday loan industry, those handy little stores sitting on the corners of many cities, which will lend you money until your next paycheck. According to an NPR story, the interest rate for these short-term loans is the equivalent of over 300% per year. Very high indeed.

The story goes on to say that the State of Ohio is in the process of crafting legislation that would put a cap on the interest rate this industry can charge.

Not surprisingly, consumer advocacy groups back the legislation, and have brought forth borrowers who have got themselves into serious financial trouble to testify. The implication is that their trouble is caused by the payday loan industry.

Also not surprisingly, the lobbyist for the industry points out that bounced check fees, late fees on utilities, and disconnect fees are even higher. She claims that payday loans are a solution, not the problem, and that the legislation will put them out of business.

Okay, got it: there are two sides to this issue.

And here is where it gets really interesting. The proposed legislation goes on to create a statewide data base of borrowers. Each of them would be limited to four loans per year, with an upper limit on the amount of each loan.

One legislator was quoted as saying that if the payday loan companies left Ohio, other institutions with better deals for consumers might step in and fill the gap. In fact, the proposed legislation would provide incentives for charities and credit unions to provide short-term loans.

Jon Husted, Speaker of the House of the Ohio House of Representatives, said, “We make bad financial decisions…. So now the government has to step in and try to save us from ourselves. Literally.”

I have not read the legislation, but the article makes no mention of offering incentives to the payday loan industry to lower its rates. Instead, the lawmakers seem bent on driving one perfectly legal industry out of business, and then taking taxpayer money to subsidize a prettier and more sympathetic industry into filling the gap.

There is also no mention of encouraging the charities, consumer groups, and maybe even the credit unions to educate people who consistently make lousy financial decision so that maybe, one day, they will actually, legitimately, qualify for lower-rate loans.

Posted by Sharon under Libertarianism | No Comments »