Payday Lending Booms as Credit Cards Become Less Available

A nominee for least-surprising business story of the year–payday lending booms as new credit card regulations and the credit crunch reduce access to credit cards, especially for higher-risk borrowers.

“We believe that we’re starting to see a benefit of a general reduction in consumer credit, particularly … subprime credit cards,” Patrick O’Shaughnessy, Advance America’s chief financial officer, told investors in November. The Spartanburg, S.C., company has 2,360 payday-loan offices, including 13 opened this year. Company officials plan to open an unspecified number of additional offices, partly to take advantage of the upheaval.

Unintended consequences really suck sometimes. ¬†Hmmm, I’m starting to question whether mindless moral outrage that wishes away unintended consequences is the best way to think about consumer credit regulations. ¬†Maybe instead we ought to acknowledge that there will be unintended consequences, such as by making credit cards less available regulation will drive many consumers to substitute to more expensive types of credit, such as payday loans? And just wait until the well-intentioned bureaucrats at the CFPB really start protecting those poor folks, then they are really going to get it.

Herewith my prospective nominee for least-surprising business story of 2011: “Bank fees and number of unbanked consumers rise as Durbin amendment price caps on debit cards go into effect: Merchants lobby for additional price controls on credit card interchange fees.”

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