Just before the elections in the fall I mentioned a ballot initiative in Montana that would impose an interest rate cap of 36% percent that will extinguish payday lending and auto title lending (and presumably other similar loan products). The initiative passed overwhelmingly. Now those non-traditional lenders are starting to wind down–many chose not to renew their licenses this year and according to this news report many of those who have stayed open have done so just to finish up collections before terminating business.
From the article:
The initiative was approved by 72 percent of voters and won approval in every county and every House district in the state.
“They did that in the name of good, frankly, but I think the political victory was a little hollow for anyone outside their circle,” said Bernie Harrington, who owns six EZ Money Check Cashing stores in Montana, including three in Billings.
Stu Summers manages Cash Connection in Billings and said the store has stopped making loans and will likely close after March 31. Most people who voted for the initiative probably don’t know how important the loans were to some people, he said.
“I’ll bet I’ve had a dozen people start crying,” Summers said. “These people feel they’ve had a right taken away from them.”
But Matt Leow, who worked to pass the initiative, said payday lenders hurt more people than they helped by trapping them in debt.
“What they need are responsible lenders,” Leow said.
Which apparently will just be summoned into existence by magic? Look, I am no fan of payday lending and auto title lending, and I also wished I lived in a world where people could get copious access to low-cost credit which they always repaid diligently and responsibly, and that no one ever had to use payday lending and the like. But taking away other people’s choices based on wishful thinking that somehow we will conjure up something better for them out of thin air, especially those with limited choices already, strikes me as an irresponsible way to think about regulation and unintended consequences. Especially when at the same time regulations supported by so-called consumer activists are making better credit products, such as credit cards, more expensive and less available for responsible low-income consumers and driving them out of the mainstream financial system.