>>> An underappreciated facet of payday loans is that without them desperate people would borrow from unsavoury people - making them illegal drives the high risk loan business underground into the hands of the Mafia. And then the consequences for the desperate people for defaulting is no longer bankruptcy, but broken legs or worse.
> If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere.
You could solve the loan shark problem and cap the interest rate by socializing the rest of the risk through some mechanism -- say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products. Obviously there are details to be worked out, but the burden of a policy to combat loan sharking does not have to fall on the most vulnerable.
>say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products
but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
> but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
Perhaps, but I have little sympathy for the feelings of the better-off people who want to clutch every penny to the point that they are jealous of the help the needy might get. If they're able to block reforms, then I think efforts need to be made to change their attitudes.
> If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere.
You could solve the loan shark problem and cap the interest rate by socializing the rest of the risk through some mechanism -- say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products. Obviously there are details to be worked out, but the burden of a policy to combat loan sharking does not have to fall on the most vulnerable.