Why Pay Day Loans should be Outlawed

There are many groups across America that advocate outlawing pay day loans due to what they consider the seedy practices of some lenders. Instead of allowing borrowers the choice of legal regulated lending through pay day loans, consumer groups support the idea of replacing them with an alternative source of low cost lending which will drive these tarnished imaged pay day loan lenders out of town. This may sound excellent in theory, but whilst rushing to ban the pay day loans these groups have yet to provide the alternative funding sources.

The presumption is presumably that without pay day loans irresponsible borrowers will automatically start acting responsibly, a very noble but totally unrealistic aim. Consumer support groups and religious groups make cases in support of banning pay day loans and some individual states have taken notice and closed down pay day loan businesses. Rival financial institutions are naturally pleased when this happens as it closes down an avenue of competition.

There are other supporters of pay day loans being outlawed which are not as vocal as the pressure groups which bring about these changes, but they have far more to gain. These are the illegal loan sharks which are likely to be the net beneficiaries of the business necessarily abandoned by pay day loan lenders.

It is naïve in the extreme to suppose that closing down the lenders who advance pay day loans will bring an end to the need of desperate people to borrow, and now the borrowers will be dependant on the financial loans of illegal lenders who may resort to nefarious practices to recoup their funds, and can make up whatever interest rates they like. Thus these illegal groups will now benefit from the closure of regulated lenders which can be nothing less than those who wanted pay day loans banned expected.

Another net beneficiary of the outlawing of pay day loans will of course be the pawn shop industry which may well be able to expand these now legitimate businesses with less direct competition. Those who used pay day loans sensibly and discreetly by conducting their business with lenders on line will now be subject to the embarrassment of going into a pawn broking business as their choice will be limited if their credit is bad or if they simply do not use credit.

Pawn broking is of course one of the oldest businesses on the planet but still manages to have a seedy image these days which is far different than their image when they first originated as businesses. They were replaced as banks became more accessible to all, but as banks now close their doors to many the resurgence of pawn broking is a certainty.

Banning payday loans is an excellent move for those who will now move instead into a different area of still legal lending. Some pay day loan lenders are now abandoning pay day loans in preference for auto title loans. This is good news for the lenders who should expect to make far more in profit from auto title loans than they ever did in pay day loan profits, whilst the consumers who occasionally used pay day loan lenders will be the ones to lose out, and lose far more.

Intervention and banning of free enterprise always comes with a price, and the price of banning pay day loans will inevitably be higher costs for the average legitimate user of pay day loan lenders. Those who are satisfied to see these lenders driven out of town will no doubt extend a warm welcome to the illegal loan sharks who take their place, perhaps introducing their other criminal activities into the local towns. Those who succeed in their arguments as to why pay day loans should be banned will no doubt welcome these changes.