Are Payday Loans Consistent with the Free Market – Yes

A free market is a market where buyers and sellers arrange for prices of goods and services. America is such a market. One business that operates inside this market is the business of payday loans. There is a debate as to whether payday loan services are predatory. Many people believe that high risk, desperate people utilize these services without fully understanding the ramifications of their actions. As such, payday loan services charge astronomical interest rates as a means to make money off of the poor. Additionally, many of these payday loan centers have “insurance” so to speak by requiring that the borrower leave a post dated check with the payday loan center. As such, there is no reliance on promises to pay back the money. The check is cashed and if a problem arises, the borrower’s credit is attacked. Even though all of this may be true, do this mean that this business is illegal or against the capitalistic ideals of American wealth? The short answer is “no.”

There is no question that this practice is legal. I am unaware of any laws that have been passed that make payday loan services an illegal business (this may change in the future). As such, payday loan service, although morally questionable to some, regulate well within the boundaries of the applicable laws. As such, a legal business is consistent with the ideals of our free market society. Additionally, because this legal business offers a product to the public of which the public does not have to utilize (in other words, the public has a choice (which in turn makes the product legal) as to which service they want to use for loan purposes), the free market ideals are upheld.

The problem that many people have is that they believe that due to the morally questionable practices of these centers, that these businesses offer nothing to society. This is simply not true. These business pay taxes and provide a service to people that may actually need it. Although the interest rates are high, people have a choice. It is that simple. Additionally, making money off of less advantaged people is not a novel idea in American business culture. You are kidding yourself if you believe that this business is the first to arguably take advantage of poor people. That is part of the free market system. There is no rule that businesses can sell products only to people that have the financial means to purchase them. If this were the case, the entire capitalistic structure of America would crumble.

I know that it is a harsh reality, but businesses depend on more than the just the financially secure. Until there are laws that better regulate (according to society’s opinion) or outlaw the practices of payday loan centers, their practices are no different than any other business that markets its products to the less than financial stable sector of the public. This is the result of a free market. And although this may be morally reprehensible to you, as long as a market exists where borrowers are willing to pay the fees and interest rates charged by these payday loan centers, there will always be a place for such a business in a free market.