Don't Limit Payday Lending, Promote Responsible Lending Instead

Jun 21, 2010, 07:00 ET from

LOS ANGELES, June 21 /PRNewswire/ -- - State legislators are forming a strong opposition against the payday loan industry. This, in turn, is making it very difficult for direct payday lenders to become profitable businesses. Many States don't allow their residents to get a payday advance loan or have strict regulations that prevent lenders from assisting customers with short term cash needs. As a result, residents of the State are the ones being hurt the most.

Today's bad economy and credit crunch does not leave too many options for Americans that are looking for a short term loan. United States unemployment remains above 10% and underemployment is a growing national problem. As a result, many Americans are living paycheck to paycheck and find it difficult to make it to their next payday. Citizens are watching their paychecks get smaller while cost of living continues to rise. The need for short term lending options have never been higher, people need a way to pay off their car note or upcoming rent when they are short on cash.

There are other short term loan solutions available but customers have less of a risk when they take a payday loan, when compared to the consequences of other types of loans if they are to default. One other type of short term loan is a title loan, with this type of loan the customer risks losing their car or home if they default. With a payday loan that is not the case, and with our economic state more payday lenders are open to work out flexible payment plans with their customers.

True, payday loans are expensive but that is mainly because of high tax rates and insurance costs put onto payday lenders. Payday lenders are not trying to prey on people who are in a financial emergency by charging high rates, the reason they have such high rates is to make up for the huge loss they take from customers who default. Apart from that, payday lenders are just like any other business and have business expenses such as property rent, payroll and operation costs.

All of these factors make payday loans expensive, but payday loans are necessary, especially in our current economy where cash flow is a big issue. If the government continues to increase taxes, put caps on payday lender fees, and limit or restrict operations, it will hurt payday lenders and eventually hurt the consumers.

A good payday loan resource, About Payday Loans, advocates responsible lending and calls on State legislators to ease legislature on payday lending. The State, in turn, should promote responsible lending so consumers have more options to create competition among payday lenders, which will naturally regulate the market and benefit the consumer.

In an article, About Payday Loans claims that regulations and caps will eliminate competition among lenders, this will eliminate smaller lenders and leaving consumers in the hands of a monopolistic market. Instead of making rules that will eliminate the smaller lenders, it would be more effective to promote competition so lenders can naturally regulate themselves, and eventually lead to affordable payday loans for the consumer and responsible lending.