Payday loans can be a solution. They also can be a much bigger problem. People take them out when they need money to pay the rent, to fix a car or to respond to an emergency. People need money when they need it. Lower-income people often do not have family or friends from whom to borrow money.
The interest rates on payday loans are high. Borrowers have to pay the loans back when they are due. If they cannot pay off the loan, they may have to borrow more money just to pay the interest.
Google will no longer run payday loan ads on their web sites. Some states have banned payday loans.
These efforts have not stopped lenders. The loan industry went to Indian tribes to get around state or local restrictions. Some tribal reservations are now the home of payday lenders. Payday lenders also market a great deal through the Internet.
Even though payday loans are bad for borrowers, the business thrives.
There is a long history in this country of trying to end practices that are not good for people. Prohibition made alcohol illegal. It did not work. The nation repealed the law. Drugs like heroin and cocaine are illegal. Alcohol and drugs created large criminal industries.
Efforts to change behaviors can work. The number of people who smoke has gone way down. But it has not disappeared. Ending advertising for payday loans may help drive down the number. They will not disappear.
Some new rules for lenders might help borrowers. New non-profit lenders could limit interest rates. Large investors such as pension funds could back the loans. There could be rules against lenders reaching into borrowers bank accounts.
The need for quick money is not going away.
Source: The New York Times May 11, 2016