I can personally vouch that Sarah is a real person who actually uses that as her non-anonymous handle online: it’s her initials expressed in a way that is non-ambiguous. She is also a very good friend of mine, and a longtime attendee of the Show-Me Institute book club in St Louis (she’s been coming longer than I have, and I’ve been coming since before I worked here). She’s even tagged in our book club photos on facebook. She has never worked for the Show-Me Institute, though I’m sure she has wanted to for longer than you have, ET.

Thank you for the additional info. regarding the employees of nursing homes. I don’t see how it changes anything, but it is worthwhile information.

Just because some people may fail to use the services of the lender wisely (or as wisely as you can use a payday lender, which isn’t very wisely), does not justify government involvement and interference in a voluntary private transaction. That is just something you and I are probably never going to see eye-to-eye on.

In response to David, the payday lending facilities at nursing homes aren’t just for the patients…they’re for the employees. http://www.nursing-home-abuse-lawyer-blog.com/2010/02/missouri_nursing_home_payday_l.html

I would suggest that there is predatory behavior that payday firms engage in that is uniquely tied to information and power asymmetries they can exploit. This would explain why so many payday lenders are located in low income, minority neighborhoods; it’s easier to exploit the uneducated, poor, and/or politically weak than it is the rich.

The frustrating thing, indeed, is that the entire industry would die if enough of their customers (who all have some type of assets, remember, either as a paycheck or title ownership) did nothing more than maintain a savings account with $1,000 dollars in it. That does not sound like much, but for whatever reason there are enough people out there that can not save anything and need to make use of short term credit facilities like payday loans.

Nobody uses a payday loan store “smartly.” Many people use it in a manner, though, that makes sense in an immediate manner, i.e. paying a high interest rate to get your car fixed so you can get to work is a better financial choice than losing your job. The regulations I have heard discussed by the Missouri legislature would succeed in reducing access to credit for people who need it and who don’t have other alternatives. I see no good coming from that, other than making certain elected officials feel good about themselves. The people in tough situations who need the credit will either go to worse options (loan sharks), or be further harmed by the lack of credit (not being able to get the car out of the impound lot).

I really appreciate all the thoughtful comments from Jack, Papillon, Eapen, and KCL. I hate the lottery and don’t play it, but I’ll admit it is largely preferable to numbers rackets. That, in a nutshell, is how I feel about payday loans.

The other obvious point I think is that even though regulation might be able to tranche the market effectively, prior policy changes around the nation have taken the form of rate caps and outright bans. This is obviously inefficient, but perhaps other ways to structure the market in more incentive-compatible ways exist.

I am not at all evading the moral debate. I think it is immoral for the government to tell one private party that it can not lend out money to another private party at whatever rate the two parties agree upon.

To Jack Naudi’s question, our court system is there to protect people who can not make these decisions properly. If you lend money to someone who is not mentally able to make that decision, you take the risk that courts will not enforce your judgement against that person. No need to tell me of the real world issues there (will be person with an undiagnosed mental illness remember to show up in court or be able to get a lawyer?), but our current system does have protections against the questions that you brought up.

That is my concern, allow whatever well-publicized interest rate the market will bear, but my cynical mind says that the businesses need the difficult to understand fees to make it worth their while, or at least get fat on.

The mob uses assassins to kill competitors, so we should make murder a legal option?

And it’s not about notification or signs warning people of things. If a person doesn’t know what APR means and never graduated highschool(a common occurrence in Ivanhoe where I live) then a sign warning them of the 800-900% APR doesn’t mean anything.

You might as well put up a big sign that warns them about hemorrhagic fever, zombies rising from the grave and ever perilous Hydrogen Dioxide poisoning that occurs when people inhale the common and under-regulated deadly substance.

Finally, you’re also overlooking that many payday loans are now being handled online or over the phone. In which case, there isn’t even a huge sign, it’s just one more paragraph of multi-syllabic words that the consumer will never understand.

The basic financial needs of these “uneducated and much more financially unstable” (not my words) people do not go away because the government tightens up requirements for lenders leading them to further restrict access to loans. From my brief time at the store, it appeared most of the other people there knew full well what they were doing and what the costs were. The signs saying what the interest rates are are large and obvious. (That is an example of a state requirement I can support.) If your car is impounded and you need a quick $300 to get it out so you can get to work, you are going to get that money somehow. It is not a choice between taking out a 6 % loan at a bank and the much higher rate payday loan store. It is a choice between the payday loan store, the loan shark, or losing your job. It is hard to argue the payday loan is not the best option there.

Do I wish everyone were in a better financial shape and able to save a few grand as an emergency fund? Of course, but wishing does not make it so, and neither will government regulations in this case.

Is it stupid to borrow money from a payday loan company or rent your furniture? Absolutely. But you’re smart enough to shoot your own videos, discuss politics and run a blog. You can probably spell amortization correctly.

Poor people aren’t as good with money and at a certain point it’s in the best interest of society that we regulate or flat out ban some practices. Usury is a practice that is so old and reviled that it’s found in the bible and was written about by Shakespeare. And for that matter, let me just link to some of the scripture because it’s going to make a better argument than I can and I’m not even a Christian: http://www.tentmaker.org/lists/UsuryScriptureList.html

I like the concept of the video; however, I would suggest that perhaps Call-A-Ride is serving an employee, visitor, or friend of a casino patron. I’ve never gambled at one of our local casinos, but I’ve often visited with friends.