Eliminating access to credit only hurts, not helps, the very consumers they claim they are protecting.
According to the Federal Reserve Bank of New York, when Georgia and North Carolina banned short-term loans, households bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a much higher rate than those states without restrictions.1
After Austin and Dallas passed municipal ordinances, storefront lending decreased around 13%, but online short-term lending increased 19%. 2
Online loans are more expensive than storefront loans. It is often hard to tell whether you’re dealing with a licensed, reputable, on-line lender or an unregulated off-shore lender from Eastern Europe, Russia, or China. The prospects of our friends and neighbors being forced to deal with the dangerous collection practices of illegal lenders is sobering.
- “Payday Holiday: How Households Fare after Payday Credit Bans – February 2008 https://www.newyorkfed.org/research/staff_reports/sr309.html
- Data provided by the Texas Office of Consumer Credit Commissioner