Utah payday lenders began refusing Monday to make loans to members of
the military rather than give them much lower rates mandated by a new
federal law.That new law, which took effect Monday, caps the annual interest on
payday, car title or tax refund anticipation loans at 36 percent
annually for members of the military and their families…."At 36 percent annual percent rate, the total fees we could charge are
$1.38 per $100 for a two-week loan. That is less than 10 cents a day,"
Walker said."Payroll advance lenders could not even meet employee payroll at that
rate, let alone cover other fixed expenses and make a profit," he said.
I’m surprised that it is constitutional for the government to require firms to lower prices for certain groups. I’m not surprised that the law has unintended consequences – but perhaps the consequences were not unintended.
"The protection the regulation offers is not a wall preventing a
service member from getting assistance, rather it is more like a
flashing sign pointing out danger and directing the borrower to a safer
way of satisfying immediate financial need," said Leslye A. Arsht,
deputy undersecretary of defense for military community and family
policy.He said financial help for members of the military is available through
a member’s chain of command, legal assistance office or military aid
society.
So the military doesn’t pay you enough to pay your bills and then they reduce your borrowing options while suggesting that you can borrow more from them. Hmmm… reminds me of a company town.
More on the story here and a hat tip to Overlawyered and Bob M.
Regarding your “company town” comment right at the end, I think you might find interesting this (http://www.be.wvu.edu/divecon/econ/sobel/UnleashingCapitalism/FinalChapters/Chapter4_booklayout_final.pdf) tidbit on West Virginia’s coal mining towns that relieves many of the myths about them. They didn’t pay poorly, their stores didn’t overcharge, etc.
It’s written by Claudia Williamson, you might know her as Pete Leeson’s WVU student who has followed him to GMU while she finishes her dissertation.
Also, last I checked AER loans are zero interest. It’s not like the organization makes money from them. It really is the best place for a soldier to go for help.
It’s only used for more urgent situations – food, car repair, helping pay first month’s rent and deposit when you move to a new base, that sort of thing. For other things, they need a bank or other source. Though I remember a couple of people being told that if they were having trouble, pay the bills so that they didn’t have grocery money, then go to AER to get a food voucher for the commisary.
I don’t really see why it would be unconstitutional. Price controls for just for those serving in the military would get rational review under the equal protection clause. Since there’s a pretty decent reason behind it – we know that military personnel have cheap access to credit, but we don’t know about everyone else – then it would be the standard required by rational review.
That doesn’t mean it’s a good policy, but since it’s clearly not based on invidious discrimination and there’s a reasonable justification for the distinction I’m pretty sure it would pass the constitutionality test (like almost anything that gets rational review).
Do I understand correctly that you think the military should pay enough for their
employees to pay their bills? Would you accompany this policy with a limit on how many bills they could run up?
I would have though you would at least would have waited to see how bad a mess the easy mortgages created before you got started on “credit snobs” again.
To Allan and ShortWoman,
No soldier is forced to take a payday loan. There is no reason the states should regulate them
or invoke usury laws against them either.
If their pay is too low, that is another issue, but don’t attack payday lenders, who provide
a useful service demanded by some people.
I see the government didn’t learn any lessons from NYC rent control.
Some things never change. Those things almost wholly exist within the realm of government.
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Why should you think this unintended? Adam Smith’s defense of usury (Book II, chapter 4 of Wealth of Nations) specifically argues:
“The legal rate, it is to be observed, though it ought to be somewhat above, ought not to be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, was fixed so high as eight or ten per cent, the greater part of the money which was to be lent would be lent to prodigals and projectors, who alone would be willing to give this high interest.”
I am inclined to think that “unintended consequences” is a mistaken idea. George Stigler argued somewhere (and I am frustrated that I cannot remember or find the reference) that the best measure of intended consequences are actual consequences. He dismissed the idea, for example, that advocates of rent control did not grasp that alternative competition for space would arise. In the same vein, it seems to me wrong to impute economic ignorance to the French students who rioted against recent efforts by the French government to ease firing restrictions because easing those rules would improve employment. A better way to analyze the problem is to look at what the firing restrictions do to increase their employability at the expense of the less skilled.
It seems self-evident to me that if some military members want to take out payday loans then their pay is not very high.
It’s not like payday loan places market their services to high income brackets.
I’ll have to agree with Joseph. Security Clearances are a big pain in the butt.
I’m sure the pay-day loan folks aren’t the type to hold off on reporting a late
payment.
Going at this from a completely economy-based point of view you have to be enraged about the fact that the government is dictating to a part of our economy what it can and cannot do. When our government, as we know it, was formed our forefathers made certain that we make America a republic NOT a monarchy, and clearly this is in vilation of that ideal. Our government is menat to have a limited power in the economy otherwise we are in danger of becoming the very monarchy we fought against in the American Revolution. In saying this, I also have to take into account the fact that I do believe our military does deserve certain breaks because of what they are doing for our coutry. However, I believe the government should offer these companies some compensation for giving these men and women what they deserve.
I am an Army reservist, and was denied a pay advanced today. I was not aware of such a law. No one in my unit knows about it either. I asked the check cashing teller why I was rejected and she stated because ‘you can get deployed and not pay your advance back.’ They also stated that my spouse can’t get one either and will be obligated to sign a paper stating she does not have someone in her family serving in the Armed Forces. The paper stated that no Armed Forces who is active or will become activated within 30 days can receive pay advance. Luckily, this was not an emergency for me, or else I will be screwed. I walked out pissed and angry. It cost me $80 to drive to my weekend drill once a month just to receive a measly paycheck, I am a private. Luckily, I have a civilian job. But what pisses me off more, is why my wife would be denied and why does she have to sign a paper? Any body out there have any more info about this new law?
The basis behind the section 2007 Defense Spending Authorization Act that prohibits active members of the military from getting cash advance or payday loans came from elements within the Left who are trying to limit credit options for Americans (Yes, there are a large number of people in this country who believe in the value of the nanny state). The premise of this story written by the man-ape Lee Davidson (they share they same body type and level of intelligence) was that payday lenders were refusing to offer loans to members of the military at 36% APR. A closer look at the statute reveals that lenders, who always utilize a check to secure these loans, were no longer allowed to utilize the federal banking system to facilitate these loans. No check, no loan. It’s that simple. Payday lenders do want to offer this product to all consumers because it is cheaper than paying bounced check and overdraft protection charges (If you don’t believe me, look at the latest study by the FDIC on Bank overdraft charges). It is worthy of mention that there are several members of the military on this board who were willing to pay the fees associated with a payday advance and were denied because someone else believed they couldn’t manage their money. (Yet, how can they manage to defend our country????) Here is another example of the government stepping in to fix a perceived problem and making matters worse.
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