1. A $400 loan with a 500% interest rate.
2. An interest rate of 10% established by law, and nobody willing to lend at that rate.
“A $400 loan with a 500% interest rate.”
Does this really exist?
I see $400 loans where $900 must be repaid in ONE MONTH.
Even at 500%, $400 would amass only $167 in interest in one month. To me that’s exploitative, but even if you can justify that this might help some people, at what point is it just exploiting desperate people who will agree to ANY rate?
I think the typical payday loans are usually “helping” substance abusers while exacerbating the problem which will lead to more crime. As anecdotal evidence I will refer you to the neighborhoods where payday loans thrive.
This is not a big government vs. small government argument. Remember that these lenders have the full force of law behind them to back their collection efforts. Government is involved regardless of what interest rate caps are in place.
I would not want to regulate a friend willing to loan a friend money at a high rate if they both agree. In other words, it should not be illegal to do this. Yet I also would not want a dispute that arose to necessitate being settled by a tax-funded court system (even if it is civil). It would be a gentleman’s agreement that was non-enforceable.
Would you oppose an enforceable agreement in which I loan someone $400 for all his or her future earning potential? I doubt it. That is slavery. How about 80% of the earning potential for the next 10 years if we both agree? At what point is excessive interest enslaving desperate people?
Just my two cents.