By Alice Salles*
“Big Corporation helps government regulators crush poor people.”
This is a headline fit for a series on the current war against making loans to low-income borrowers — although we’ll never see it framed this way by The Washington Post or The New York Times.
But this is exactly what’s happened with payday loans as Google has joined government regulators in an effort to get rid of the payday loan industry and keep low-income working individuals from having access to cash lenders. After all, it seems evil capitalists in the payday lending industry are offering loans at higher interest rates — loans the poor would otherwise have no access to at all.
According to Zero Hedge, Google has been working around the clock to combat “fake news,” a new category of information big media and established politicians have invented to attack news organizations that fail to spread the official narrative. As part of this war on “fake news,” Google banned “predatory” ads as well, disabling five million payday loan ads in the last months of 2016. This new policy of course helps both government regulators and established bankers who now are subject to less competition from small payday loan firms.
As someone who has used payday loans in my days of struggling with little income in Hollywood — and when no bank would help — I find it incredible that, in 2017, people don’t know better.
Why Rates for Payday Loans Are Higher
In a late 2016 article, Jonathan Lee explained that short-term lenders charge higher interest rates because they are taking on a big risk when they lend money to low-income borrowers. Some of these borrowers don’t have a credit history or even a bank account. Lee explained how payday lenders fill a real need:
[P]olicymakers are thinking with their hearts while sitting in their air-conditioned offices, away from the facts and any form of interaction with the real world of short-term loans. Just the fact that they see the short-term loan industry as “dirty” supplies sufficient reason to believe that either these policymakers are ignorantly prejudiced or plainly manipulative…
Studies show these lenders charge on average 15 percent, or $15 for every $100 loaned — a profit margin that is significantly less than the price percentage difference of products in other markets.
Nevertheless, federal regulators think the industry is too profitable, and argue that regulators should “solve for ‘balloon payments,’” by “requir[ing] that most products become installment loans with smaller, manageable payments.”
The problem with this statement is that the Bureau completely ignores the reason why short-term loans are so available to borrowers &mdash ’s because short-term loan companies can offset risk by requiring borrowers to weigh their own risk against their need to borrow.
Simply put, the short payment periods are put in place to deter those who definitely should not borrow. Additionally, making the periods longer and the payments smaller defeats the business model, making short-term lenders irrelevant because their models are defined by their expediency.
By ignoring the need for firms willing to take the a risk on low-income borrowers, regulators — and Google — ignore the payday lenders’ importance. Not only because the low-income community has no standing with big banks, but because the payday firms serve to educate the individual.
For those who have been in a low-income situation, however, the need for quick, easy loans is apparent. When I needed access to a loan quickly, I am glad I had a payday loan in my neighborhood. I needed the money then and there and I got it, but most importantly, I was truly happy the lenders imposed incentives to pay it all back. Which is what happened.
Life can be hard at times. And many people need any help they can get. And, they often need help fast. Conventional banks simply don’t offer these services.
Google is a private company and is entitled to decide for themselves who can work with them as advertisers. However, by working with regulators to attempt to put payday lenders out of business, Google is only working to further limit access to loans for low-income households, and making life even harder than it needs to be.
About the author:
*Alice Salles was born and raised in Brazil but has lived in America for the past ten years. She now lives in Compton, California and writes for The Advocates for Self-Government, Liberty Conservative, and Anti-Media.
This article was published by the MISES Institute