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I would be a little more sympathetic to the payday lending business if I did not believe that there is a lot of price fixing in the business. If there was no price fixing, the market would cause the "loan rates" to fall to what the market will bear. Instead, there appear to be artificially high rates in this business.

This article provides:
"The trade group representing national payday loan chains has signed on to the legislation. But another group representing smaller players is fighting it. The small fry say they can't survive on the lower fees. The bill's sponsor, Rep. David Miller, D-Dolton, picked the $16 figure by averaging the limits in other states that regulate payday loans. The cap is even lower in Indiana, he notes, but the payday industry is healthy there."

This trade group appears to want what amounts to quasi-state sanctioned price fixing, believing that its members can make sufficient returns at the state mandated maximum and at the same time comply with the additional administrative requirements. If that is the case, then those same members should have logically already been in the state offering these lower rates to increase market share, and not be bothered with the extra administrative costs.

The added administrative costs probably will kill some of the smaller local outfits who can have some hope of knowing their customers well enough to know the risk they are taking when they make these loans and who will use that knowledge to price these loans accordingly. On the other hand, the "officially sanctioned rate" of 16%/fortnight will become the across the board price.

As far as the no more than three rollovers every 45 days goes, it is a fair bet that if these things have not been paid in that time period, the lender is not going to get paid anyway.

One thing this article fails to mention is bankruptcy. Under our bankruptcy laws, most folks who borrow money under these terms will keep everything they have if they file bankruptcy because their bankruptcy exemptions exceed their assets. Furthermore, a bankruptcy will not hurt their credit rating because if their credit was worth a damn, they would not be using this service.

I know that I have rambled on both sides here. I guess that the bottom line is that the folks who make these loans are not above price fixing. Setting a ceiling of 16%/fortnight is not going to do anything of consequence to help the situation. And, if these borrowers get screwed too hard, they have a perfectly good way out through the bankruptcy court that will be reasonably painless.