Should Iowa City rezone to prevent payday lenders?
The city of Iowa City is reviewing a plan to limit the number of payday lenders in the area. The plan would place restrictions on the location of payday lending venues, and that kind of free-market interference is likely to backfire.
If the rezoning prohibitions meet fruition, those that are already in the area would be grandfathered into the system. That means that the few already in existence, charging outrageous interest rates, would have limited competition and therefore little to no incentive to decrease their rates.
That's not what the city wants. The city is looking for a way to keep trouble out and protect consumers from an almost certain cycle of debt. The fact of the matter, however, is that until people have more, better paying jobs, it's a bad idea to decrease business and limit loanable funds.
America is built on buying and selling, but also on lending and investing. Borrowers recognize that they will need to pay back what they have borrowed, and usually with interest. The only way to keep the interest low is to have little demand for borrowed funds, or greater supply of loanable dollars.
Since the current U.S. economy leaves a relatively high demand for borrowing, the best solution is to allow an equalizing amount of lenders. It's supply and demand — the American way.
The only person who can decide not to borrow is the borrower. Members of Iowa Citizens for Community Improvement say it believes that the trouble lies with the lenders; but the issue is more complicated than blaming just the lenders.
People choose to borrow, and if there were not businesses who could make legitimate loans in an open and taxable market, then those people who still need cash immediately would have to turn to another market. I'm not suggesting that we encourage more payday lenders but only that we allow the market to decide.
The free market has automatic mechanisms for correcting both supply and demand, and the government's role is to make sure the business is fair, contracts are legal, and that everyone is paying taxes.
The government should not arbitrarily grant a monopoly to the payday lenders already here.
Rather, it should open the gates for free-market opportunity and raise taxes on scandalous business practices. That way, the city increases revenue for buses, roads, public education, and if worse comes to worse, help for those people who were trapped by the problematic lending system. Hooray for legitimate government interference.
— Katie Kuntz
The problem here is not Big Brother trying to discourage free-market business or the personal responsibility of an individual: It is an industry that fosters long-term damage in communities.
Payday lenders are designed to keep low-income households borrowing money. They are literally modeled to keep a person paying until the person is sucked dry.
It's not a happy-go-lucky business — it's borderline criminal.
According to who? Great question: Cue the Federal Trade Commission, which released a report in 2009 urging consumers to consider alternatives to payday loans.
The report describes situations in which individuals subject themselves to incredibly high interest rates to receive only small amounts of compensation.
The report went on to say "The bottom line on payday loans: Try to find an alternative."
The APR on these babies will make your head spin: 300 to 400 percent, according to a consumer advisory from the Iowa Attorney General's Office.
Just to put this in perspective, 24 percent APR is considered high for credit cards. A $100 charge on a credit card would only cost 92 cents with 24 percent, but a $100 loan with 300 percent APR?
And the reason these payday lenders even exist is because low-income consumers with poor credit history need money to get by between paychecks.
Unethical to make your money off of the fact that some people need money fast? Yeah. So let's keep them away from hot spots like schools and residential areas.
There have been several cities in Iowa that have adopted similar ordinances to the one being proposed for Iowa City: Ames, Clive, Des Moines, West Des Moines. And many of these cities have stricter ordinances than what is being proposed.
Individual responsibility is important, yes. But understanding that free-market capitalism, completely unregulated, leads to uncivilized businesses practices. It is the duty of the local government to step in and regulate these practices.
The Iowa City City Council is acting responsibly by considering this ordinance, not being Big Brother.
— Benjamin Evans
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