Are Payday Loans Consistent with the Free Market – Yes

Payday loans as part of a free market society is very much consistent with it. Payday loans are nothing more than a very short term loan at a high interest rate to make it worthwhile for the lender. There is a need for such short term loans or they would not exist. However, and this is one of the few times you will ever hear me in favor of government controls, they need to have government oversight to ensure that people are not being abused or taken advantage of.

There are two schools of thought on parting people from their money as well as laws that ensure it is a fair and equitable exchange for both parties. The first school of thought is that as long as people are willing to give up their money then i should be allowed to take it by any means necessary. For those people there is no meaning to the term “fair play” and anything does generally go. These are the criminal element in our society that feels that if they can take your money from you then you surely neither appreciated nor deserved the money in the first place. They believe that people are in general stupid and gullible and they work hard to take as much money from as many people as possible. Now from a government standpoint, these are the easy ones to arrest if you can catch them and if people turn them in. Unfortunately they are not so easy to catch especially when they work under the guise of a respectable business that is performing a service for the community.

The second school of thought is that people should only be parted with their money when they are duly compensated for their money and that regardless of whether or not people are stupid and gullible they have the right to fairness. These are the people that in general create the laws that protect consumers.

As long as governmental controls placed on payday loan companies keep them fair and ensure that they are not fleecing their customers then the payday loan companies are staying consistent with the free market. It is only when they are not provided with over site and are allowed to continue to raise percentage rates with no regard for their customers that this becomes an issue.

Some communities have started banning payday loan organizations especially around military installations because of their tactics in regards to their customers. Banks are finally starting to get in on the picture and because banks are given more over site and want to keep your business they usually provide more fair and equitable solutions. My bank for example provides for a short term loan that is capped at 25% interest. 25% is very high for a normal loan however it is much lower than most payday loan companies who either have no cap or are capped between 50% and 99% interest. Banks also tend to ensure their customers are informed as to the actual interest rate and when the payments are due.

As with any other business in a free market we are gradually seeing both honest businesses such as banks getting involved and more governmental controls which will keep payday loan businesses in check and in business for a long time to come.

The actual problem other than the criminal element comes from the credit companies themselves which i will of course discuss in a separate topic.