Credit Rationing

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

He said financial help for members of the military is available through
a member’s chain of command, legal assistance office or military aid

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.


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