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Beyond Payday Loans - by Clinton and Schwarzenegger

The American dream is founded on the belief that people who work hard and play by the rules will be able to earn a good living, raise a family in comfort and retire with dignity.

But that dream is harder to achieve for millions of Americans because they spend too much of their hard-earned money on fees to cash their paychecks or pay off high-priced loans meant to carry them over until they get paid at work.

Here is one initiative that can unite progressives and conservatives as well as business leaders and community activists: helping the "unbanked" enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market. This will put money in the pockets of individuals and grow the economy. And it won't cost taxpayers a dime.

See the entire article here.
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  1. Anonymous2:20 PM

    Right now, payday loans are a cheaper alternative to bounced checks, and restart fees on utility bills. If a business can provide cash advances to high risk consumers at lower rates, then those new businesses should try to compete in the market. Price fixing and usury limits do not have the intended effect of forcing legal lenders to lower their fees. Instead, legislating price caps simply forces legal lenders to stop offering loans to certain consumers.

    In other words, if legislators cap the fees on short term loans or bounced check fees, then lenders and banks simply stop offering credit to a large segment of the market. This is not a solution, as persons living paycheck to paycheck will resort to "unregulated" lenders. Prohibition failed in other arenas, driving people to unscrupulous providers, and the same occurs when legislators outlaw payday loans. Typically, when states eliminate payday lending, the consumers turn to unregulated foreign based Internet payday lenders.

    See the following article from the Federal Reserve Board regarding How Households Fare after Payday Credit Bans, for more information: http://www.newyorkfed.org/research/staff_reports/sr309.html
    It would be far better to regulate and monitor short term loans, and to find ways to encourage competition, then to simply legislate these consumers into the hands of unregulated lenders.

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