As you might know, the Consumer Financial Protection Bureau has declared war on small, high interest loans (known as pay day loans) under the rubric of protecting consumers from supposed sharks who will prey upon them in a time of need.
The CFPB wants stringent regulations that can drive many, if not most or all, those who make these loans out of business.
But do consumers really need protection from these lenders? Or perhaps do they sometimes benefit from having this resource, albeit at interest rates that should discourage anyone of making a lifelong habit of obtaining these loans?
In his book, The Journey Back to Now, Robert Sherrill, now a successful businessman, recounts growing up in public housing and spending time in prison. He also did something else that would shock and horrify our bureaucratic elites: he took out a payday loan in order to turn around his life.
Far from denouncing such loans as predatory, Sherrill writes in today's Examiner:
When I got out of prison and wanted to turn my life around, a payday loan allowed me to start my commercial cleaning business, Imperial Cleaning Systems, Inc.
As many small business owners will tell you, starting a company isn’t easy — there never seems to be enough money. I needed a simple $1,000 loan to get myself up and running; but I quickly found out that banks and credit unions have regulations and rules that typically hinder those with a criminal background and a turbulent financial history.
It’s true, I had made mistakes in my past, but this meant I found myself without any options to legitimately pick up the pieces and move forward with my life after my release.
I had two choices: Return to my old ways and earn money on the streets, or try for a personal loan to keep my business afloat. Advance Financial, a local financial service center in Nashville, took a chance on me and loaned me the resources I needed to get started. These loans saved my business, and they no doubt saved my life. Today, Imperial Cleaning Systems employs more than 20 people in Nashville.
Since Washington started its witch hunt against payday lenders, I’ve also spent time learning a lot more about the industry. I’ve discovered I’m certainly not alone in understanding and benefiting from these small-dollar loans. In fact, one recent study found a majority (63 percent) of customers who used payday loans believe the companies provided them with good information about the fees and risks.
The move to regulate these small loans is based on the notion that elites know how to tell people to make their decisions and elites are repelled by such loans. Sherrill explains:
While it might be easy for those at the CFPB to live without these loans, the same cannot be said for those without generous salaries and benefit packages. Customers who use small-dollar loans are typically employed; but they still struggle to make ends meet and cannot meet the requirements for traditional funding options. And now, Washington threatens to make that struggle even harder.
Let’s be clear: If the government takes away this legal, regulated option for credit, many customers will still need to find a way to pay for living expenses and unexpected emergencies like having to repair a heater this winter. Without these loans, many will get that money in a more dangerous way. Others will find themselves even deeper in debt.
Washington should let the consumer decide. No doubt, there are many people who use these loans unwisely (though the high interest rates will ultimate put a halt to a cycle of abuse), but there are also those who use them to get over a hump in life.
Why not let people make their own financial decisions?