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Government Tells Grown-Ups What to Do

One of the recurring themes coming out of Washington seems to be the effort by politicians to protect adults from themselves. Rather than treat adults like adults, they are intent on finding problems to fix even where they don’t exist.

Take, for example, the issue of payday loans. Back in 2019, the government decided that it should step in and prevent what it perceived to be an abuse of the nation’s servicemen and women. They passed a law that forbid any lender in the United States from charging more than 36 percent interest on a debt to a person in the military or their family.

Ostensibly, this law was designed to protect soldiers from payday lenders.

Some states have also passed laws that create a similar situation for all of the citizens in their state. Oregon, for example, has a 36 percent cap on interest rates. Groups like the Service Employees International Union have lobbied for these laws, claiming that the practices of payday lenders are predatory.

Proponents of these laws point out that banks and credit unions make plenty of money lending money for rates far below those of payday lenders. The problem comes with the term of the loan. While a bank loan is typically going to last a year or more, a payday loan usually lasts about two weeks.

This means that, even if the rate were capped at 90 percent, a payday lender would be able to only charge about 10 cents a day per $100 of the loan. That works out to $1.40 over a two week period. As the average payday loan is less than $300, this would make it completely unprofitable to try to run a business.

The problem with these laws is that they effectively protect only a small minority. Most people who walk into a payday lender understand that the interest rates are high, but they’re willing to pay them because of the extremely short term of the loan. To be able to borrow $100 at a fee of $15 in order to be sure that you don’t bounce a check and pay as much as $35 to your bank and another $35 to the recipient of the check makes good sense. Unfortunately, these laws block soldiers all across the country and citizens of many states from having that option.