Wednesday, December 11, 2013

This thing we call a loan...

By any other name, would be a service to the person receiving it. And that service would have costs that have to be recovered by the firm supplying the funds. Something that NPR doesn't quite seem to understand;
A payday loan is a costly form of credit operating on the fringes of the economy. That's why the target of a new crackdown by federal regulators may surprise you: Instead of a forlorn-looking storefront with a garish neon sign, it's your familiar neighborhood bank.
Offering 'deposit advances' to people who find themselves short of cash when needing something vital to their lives. For instance;
Terms vary by bank, but basically, here's how it works: You borrow the money, and in return you give the bank the right to go into your account and pay itself back, plus a fee, as soon as your next direct deposit comes in.
Which opportunity came from the do-gooders;
Some states have fought and banned storefront versions of payday lenders, only to find banks filling the gap.
In Arkansas, nearly 300 payday lenders were operating in 2008, according to Hank Klein, a retired credit union president who became an activist against payday loans.
But, Klein says, a court ruling allowed the state attorney general to drive them out.
"They've been run out of the state by the attorney general," Klein says. "Well, now the banks come in and [they're] doing the same thing. They operate under federal laws, so the attorney general can't do anything."
The 'payday lenders' found a need, and filled it, but when the politicized class didn't like it and outlawed it, the banks stepped in to fill that need. Which is why politicians hate markets, they allow people to get around the 'rampaging presumptions of their betters' (Thomas Sowell's phrase).

These small loans have costs that are a large percentage of the amount advanced, which strains the mathematical skills of NPR reporters who can't get over calling it 'the interest rate'. Which, to the medieval mind is something sacred.

To sum up, when loans to the needy are outlawed, only outlaws will make loans to them...with often unpleasant side-effects.

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