Any way you slice it, the loan business is harsh. This is why, traditionally, tight fisted banks had the extraordinary gall to actually ask people what they wanted the loan for.
If you wanted a bunch of money because you *knew* that a horse was going to win at the track, the bank would unfairly tell you no. While it was really mean of them to do so, in the long run it didn’t just help the bank, it helped the consumer as well.
Granted, some people were so persistent that they were willing to go under the table, and get money from loan sharks. But this guaranteed indebtedness often for the rest of your life, or until the police arrested the loan shark, because the loan shark didn’t want you to pay back the loan, they wanted you to keep paying interest forever.
But then came along the credit card companies, to a large part run by the children of organized criminals, who had the law passed in their favor that they didn’t care how you spent the money, and you could deeply impoverish yourself if you wanted to. And not too long ago, they got another law passed so even if you went bankrupt, you will still be in debt to them.
This just illustrates how harsh the loan business can be.
Now, if we eliminate a part of the loan system that is particularly hard on the poor, will that help? Well, to some extent it will deprive people of opportunity. But to a greater extent it will keep people from spending beyond their means.
In balance, it is better to do without than go into debt.
Even the US navy is now putting payday loan companies off limits. This is because they have long had a rule that sailors deep in debt cannot ship out. And some sailors were using this to avoid being sent to the Persian Gulf. Others were being tricked into going into debt by these companies even though they wanted to ship. Subtle tricks to ensnare people over time, so they almost *had* to get a payday advance, yet never got out of debt.
The bottom line is that while some of the poor will improve their lot, the vast majority won’t. Those who will, will find some way to do it, so they need less help than the majority who shouldn’t be ruined.
One of the major nationwide practitioners and leaders in this type of lending is a relatively small, southern cal bank called Santa Barbara Bank & Trust.
They have received lots of grief from regulators, customers, and shareholders since the lending is so usurious and made for idiots frankly.
But it’s been a moneymaker for them for years, and despite the bad pub, they plan to continue it indefinitely. Maybe it will get legislated out and they’ll have to figure out a way to do it differently but the same.