Take for example the provisions of HB 1942, which would limit the annual interest on a payday loan to 36%. That may sound like a high limit to many, but remember that payday loans are not secured, meaning they are not backed by a car or a house or something else the lender can repossess if the person who takes the loan doesn’t pay up. They’re like personal loans from banks, which don’t come cheap. According to the Federal Reserve, the average personal loan interest rate is around 10%. For those without good credit, the rate approaches 30%.

Capping interest rates might sound like a good idea—sticking it to lenders and helping out regular people. But the people who take out payday loans are often those who would not qualify for a loan at 36% interest. Thus, a bill like HB 1942 would protect these people from high interest rates by cutting off their access to credit entirely. If someone’s car breaks down or they have a medical emergency and they need cash fast, telling them they should have saved more or joined a credit union six months ago will be cold comfort.

See former policy analyst David Stokes talk about payday lending in this Show-Me Institute video.

The post Missouri Legislature Looks to Further Regulate Payday Loans appeared first on Show-Me Institute.

At their core, the solutions so often pushed ahead for both issues — like capping loan interest rates and raising the wage floor — share a common problem of policy. First, payday lending exists in large part because its customers cannot get credit anyplace else; payday loans are very, very expensive, but if the alternative is having your gas or electric flipped off for lack of money, it is an option many of the working poor would want to remain available. Cap payday interest rates, which are basically set to account for the risk of default, and you will have fewer payday loans, which leads to other, potentially more difficult, problems for the lenders’ former customers. One way or another, those bills have to get paid. Payday loans serve that need and risk, for a price.

Raising the minimum wage presents a similar problem. By raising the floor for what workers must get paid, employers are incentivized to hire only the most skilled labor. In fact, studies show that raising the minimum wage harms the very people it is supposed to help — those on the bottom rung of the pay scale. As David Neumark wrote for the Show-Me Institute in 2006:

When a minimum wage goes up, the higher wages don’t always go to the workers who need them most. Minimum wage laws create winners and losers — the winners see their wages and incomes rise, while the losers are unable to find jobs or to work as many hours as they would like. If the winners were mostly unskilled workers in poor families, a minimum wage increase might be worthwhile. Unfortunately, this doesn’t seem to be the case.

Put more succinctly, raising the minimum wage makes it more difficult for low-skilled workers to find employment. While raising the wage sounds on the surface like compassion, in practice, it oftentimes means anything but.

These are serious issues that deserve serious debate from both sides of the issue. For now anyway, it appears public votes will have to wait.

The post It’s Official: Payday Lending, Minimum Wage Initiatives Off November Ballot appeared first on Show-Me Institute.

The issue is not going away forever. The supporters are continuing their effort to cap interest rates. I admire the desire to protect borrowers from abusive lending, but there is a better way than capping interest rates.

Interest rate caps at this rate will not only prevent high interest rates; they will eliminate payday loan shops in the state. Consequently, payday borrowers will probably not be able to acquire credit.  A better way to help borrowers is to make cheaper credit available. Do something similar to what this group is doing, and donate money to banks to offset losses from high-risk, short-term loans — thereby bringing down the interest rate.

For an excellent, succinct analysis of payday loan shops and regulations, click here. For more detailed commentary on the topic, see here and here.

The post Short-Term Lending Regulations Can Do More Harm Than Good appeared first on Show-Me Institute.

Central Bank has agreed to make old-fashioned signature loans (that means no collateral from the borrower) of $300 to $2,500. That’s also what payday and installment lenders do. Except Fair Community Credit will lend money for slightly longer durations and at a double-digit interest rate, not a triple-digit one. That way borrowers will have a better shot at paying off their loans, rather than defaulting.

What makes that possible is Fair Community Credit’s promise to cover any loan losses from a $200,000-plus loan guarantee pool donated by foundations and individual donors.

The market is creating relatively cheap short-term credit alternatives to payday loan shops. It is incredible to watch society tackle perceived problems through voluntary interaction without the forceful hand of the state. It will be intriguing to see the results of this venture.

A hat tip to John Combest for the link.

The post Can The Market Provide Cheaper Short-Term Loans? appeared first on Show-Me Institute.

And why 2,500 feet? Who came up with that number? This article sites the possibility of crime and lower property values around clusters of these businesses, but half a mile seems a little excessive. I would hardly call it a cluster if the businesses located just one block from each other, but even one block is an arbitrary number.

As you may recall from the mantra “location, location, location,” the location of a business can drastically affect profitability. The proposed legislation may make it impossible for more than one loan shop to take advantage of a good location. Since when is that reasonable? Businesses locate in a particular area for a reason – and unfortunately for the affected businesses, the reason they locate to a particular area may be the county’s legislation dictating the available options.

Additionally, why is the government singling out pawnbrokers and short-term loan shops? What next? The proximity of ATMs? When will the regulations stop?

For more Show-Me Institute payday loan material, check out this and this, as well as this awesome video.

The post Musings On Payday Loans And Pawn Shops In Jackson County appeared first on Show-Me Institute.

The post Show-Me Institute Free-Market Field Trip No. 2: Payday Loans appeared first on Show-Me Institute.

Eight million Americans cut up their credit cards this year, according to new data out from credit bureau TransUnion. Some of those plastic deserters were folks who faced scary economic conditions and decided to voluntarily cut back on debt spending. But for others, it wasn’t a matter of choice.

Millions of customers found themselves unceremoniously ejected from the ranks of the card-worthy thanks to last year’s Credit Card Accountability, Responsibility, and Disclosure Act, or Credit CARD Act. The new rules were supposed to “protect American credit card holders” by stopping “unfair rate increases.” Instead, credit card companies prepared for their new straitened circumstances by booting customers who would no longer be profitable (read: poor people and other risky borrowers), and hiking interest rates for others. American Express even offered $300 bonuses to customers willing to pay off their cards and close their accounts—a deal designed to entice the kind of cash-strapped customers AmEx was soon to find less lucrative.

But as the new rules make it less appealing for credit card companies to offer their services to certain segments of the population, most of those people don’t revert to a cash-only state of nature. The appetite for credit doesn’t vanish when credit cards are harder to get. Instead, customers turn to options like installment plans, layaway, and payday lending for quick credit—and the fees they pay for those options are as high or higher than the credit card costs Congress and the White House found so objectionable. And in an economy that runs on plastic, debit cards replace credit cards for everyday purchases.

Congress has destroyed credit card access for many low income individuals, but many states have already eliminated second- and third-best options like payday loans, and there is pressure for Missouri or its localities to follow suit. For instance, in this editorial from the Springfield News-Leader, Pastor Roger Ray argues that Springfield should ban payday loans because “on a per capita basis, no state takes such reprehensible advantage of the desperate poor, fueling drug and alcohol addiction and gambling addiction with easy-to-get but hard-to-pay-back loans.” The rest of the editorial is packed with evidence-free assertions, overblown rhetoric, and enough fallacies that it would take a book to refute them all, so I will confine myself to the consequences that would follow from such a ban.

As I showed in my op-ed about this subject earlier this year, restricting payday loans leads to more bounced checks, complaints to the Federal Trade Commission about lenders and debt collectors, utility shutdowns, and higher rates of bankruptcy. Payday loans are far from the best form of credit, but, in some cases, they are the best available to people. If Pastor Ray wants to eliminate payday loans in his community, I would encourage him and his congregation to start a fund to lend to low-income individuals at lower interest rates (or for free). If enough people share his sentiment, the payday loan industry can be eliminated without the force of law because very few people will opt for a more expensive loan over a cheaper one.

However, if the city government eliminates the loans by law, debtors will be forced to turn to even worse alternatives. I’m relatively certain Ray believes that a ban on payday loans would improve the lot of the poor, but that is an empirical question that most studies of the issue have answered with a resounding “no.” So, in the famous words of Oliver Cromwell, “I beseech you, in the bowels of Christ, think it possible you may be mistaken.”

The post Helping the Poor by Denying Them Access to Money appeared first on Show-Me Institute.

While the Chicago Outfit may have been a bit heavy-handed in its debt-collection practices, the interest rate the crew charged for a loan was a bargain. A bargain, that is, compared to the fees charged by the numerous payday loan outfits in Sacramento and throughout the state.

Carlisi and company extended short-term credit, or “juice loans,” for fees that pencil out to an annual interest rate of 260 percent. The Outfit may be disappointed to learn that they were working for chump change. Had they waited a few years, and then come out West, they could have become payday lenders and made some real money.

Although the gratification of physically collecting a loan isn’t allowed, in California it’s perfectly legal for a state licensed payday lender to charge up to 5,474 percent annual interest in this rapidly expanding niche lending business.

I’ve been meaning to comment on this for a while, because this is really fascinating data. Readers who peruse the article from which this excerpt is lifted will note that the author uses this statistic to argue that payday rates are excessive and exploitative. Well, perhaps, but this data doesn’t render that claim obvious. The fact that payday loan rates are higher than loan shark rates could simply suggest either that payday lenders face higher costs of enforcement, higher default rates, higher transaction costs, lower-quality information, or some combination of these factors.

It’s easy to see how a legitimate, white-market business would have higher overhead costs than a black market loan scheme, if for no other reason than that a white-market business must handle contractual disputes with tools furnished by the legal environment. No such encumbrances burden black market creditors. As former Show-Me Institute Policy Analyst Justin Hauke put it in an op-ed: “At least with a payday lender, default is settled in court. In the black market, it usually involves a crowbar.” In this sense, the higher prices of payday loans likely reflect the premium that consumers are willing to pay for safety.

The post Payday Loans vs. Loan Sharks appeared first on Show-Me Institute.

Hyperbole aside, the piece does make some good points about the lack of transparency in the hearing. Only representatives of the industry were allowed to speak, and the chairman of the committee does own a payday lending business — a clear conflict of interest. Although I happen to agree with the industry in this instance, the political process should be an open one. In the long run, legislative stalling and one-sided presentations will not preserve a healthy democracy or the free market. (It is worth pointing out, however, that town hall meetings on the issue also presented only the opposing side of the debate. Admittedly, those were not official government hearings, but the principle remains the same.) An open market produces better outcomes than a monopoly, and I believe that rule applies just as much to ideas as to physical goods and services.

Finally, I think this phrase shows a misunderstanding of my argument: “Mr. Payne’s point that usury today is not as bad as it was in Shakespeare’s time provides little comfort to the working poor and to those trapped in a spiral of debt.” My point is that if payday lending is regulated out of existence, people who currently rely on those loans for short-term credit will be forced to seek out loan sharks every bit as brutal as Shylock, who will demand a pound of flesh from those who cannot pay up.

The post In Which I Am Compared to the Devil appeared first on Show-Me Institute.

Accompanied by my trusty colleauges, John Payne and Josh Smith, I decided that if we were going to write about the payday loan industry we should know exactly what the process involves. I think John summed it up best in the video when he pointed out that it took him less time to buy cars than it took me to get $50 from a payday lender.

The post David Stokes Takes Out a Payday Loan appeared first on Show-Me Institute.

For starters, basic economic intuition would suggest that the payday lenders operate in a competitive marketplace. Fairly low barriers to entry (both legal and financial) into the market and the vast number of storefronts implies that individual stores face strong incentives to underprice their competitors. The result, barring collusion or market distortion, would be that prices are efficient, and not exorbitant.

The empirical evidence bears out this claim. A paper released by the FDIC Center for Financial Research used panel data from a large vendor to demonstrate that, despite the high interest rates on payday loans, the profitability of payday lenders does not statistically differ from the profitably of other financial intermediaries, like “reputable” banks. This should appeal to intuition: Payday lenders cater to risky populations that are vulnerable to financial stressors and prone to defaults. Risky customers warrant high rates to compensate for high default rates. This understanding regarding the level of market competitiveness and the condition of interest rate efficiency is crucial to understanding the policy effects of regulation in the payday loan market.

Last week, in a conversation with state Sen. Mary Still — one of Missouri’s most vocal critics of the payday lending industry and author of regulatory legislation in the General Assembly — I hoped to identify her latitude of acceptance for various payday lending policies (including deregulating the market further). I discovered that the two policy tools that are most likely to hear debate in the General Assembly are interest rate caps and providing incentives for banks to become “legitimate” vendors of payday loans. In some important ways, these approaches are troubling. If the market is already competitive and interest rates are efficient, an interest rate cap will choke the market and force lenders out — and banks shouldn’t have the ability to offer significantly cheaper rates on similar products. At any rate, revealed preferences would suggest that there is a reason banks aren’t willing to offer payday loans without incentives.

As I’ve discussed earlier, payday loans have the potential to be both helpful and harmful. Imposing interest rate caps on the market will stifle the ability of payday loans to help consumers, and incentivizing banks to offer such loans will do little to shield consumers from harm.

The post Payday Policymaking appeared first on Show-Me Institute.

From the editorial:

The big losers are the vulnerable Missourians who are being ripped off with impunity by payday lenders. Republicans have let the public down. Gov. Jay Nixon, a Democrat, hasn’t been much help either.

The highly charged language of this paragraph ignores that payday loans are consensual agreements made by individuals. Payday loan customers are not forced to take these loans, but rather take them out voluntarily for any number of personal reasons.

People who apply for payday loans usually have a high risk of default, or need money immediately — otherwise, a bank would be willing and able to offer a longer-term loan at a much lower interest rate. When payday loan stores lend out money, they have to take into account the risk of that loan remaining unpaid. Because these loans are made to people who are less likely to pay them back, that higher risk is counterbalanced by a higher interest rate. If rates are lowered by force of law, many higher-risk borrowers will find themselves entirely without access to legitimate forms of credit.

(For those who read Show-Me Daily often, you know that payday loans have been a regular discussion topic for the past two years. The previous posts are well worth reading.)

The Post-Dispatch also includes an AP photo of a group of payday loan stores, which well illustrates the abundance of stores in the market. This image illustrates an important free-market principle: competition. The close proximity of the stores means that payday loan lenders need to compete for customers. If one store is charging a higher rate than warranted by customer risk factors, accounting for an individual’s ability to pay back the loan, then another lender will be willing to undercut their competitor by offering that loan at a lower rate (an ongoing process, until the “market rate” is reached). Any worry about people being “ripped off” should be abated when one factors in the idea of marketplace competition: Each store sets rates to vie for customers while balancing the risk of repayment.

The Post-Dispatch ignores the fact that some people who really need loans cannot always get those loans from a bank, but that the necessity of the money immediately outweighs the longer-term potential cost of a payday loan. Setting any sort of regulations on payday loan operations means that some people will not be able to get loans legally. That does not mean they won’t get loans at all, but they will have to use underground or black market means to obtain them. This puts high-risk borrowers in an even worse situation, because if someone can’t pay back a payday loan or a bank loan, there are legal methods to handle the situation, like bankruptcy. If someone doesn’t pay back a loan, on the other hand, the lender has little recourse other than black market violence.

Deciding to increase payday loan regulations amounts to misguided paternalism. People at the margin will still take out loans they cannot afford to pay back — but that will happen whether they get them from a payday lender or, as the present mortgage crisis has shown us, from a traditional bank. In an attempt to save consumers from themselves, such loan regulations push desperate borrowers to illegal sources. Payday loan rates should be left to market competition, not government officials.

The post Post-Dispatch Prefers Broken Legs Over Court Dates! appeared first on Show-Me Institute.

Good bit:

The FDIC found that payday loan fees were justified by the costs and risks associated with offering such loans. The FDIC also found competitive products like bounced checks carrying APRs of up to 3,500 percent.That APR calculation – designed to compare competing, long-term forms of credit – is why a 36 percent APR cap, as proposed in current Missouri legislation, would ban short- term loans in the state.

If imposed, a 36 percent rate cap would mean lenders could only charge about $1.38 per $100 borrowed. At such a low rate, lenders simply can’t cover their costs – such as rent, employee salaries and benefits.

As I’ve written before, I’m opposed to payday loan regulation because:

1. I view payday loan transactions as legitimate, consensual business interactions between relatively rational actors.
2. The empirical evidence suggests that payday loans constitute a useful service. I look, for example, to Donald Morgan and Michael Strain, who show that increased access to payday loans reduces the volume of bounced checks. I also look to Edward Lawrence and Gregory Elliehausen, who find that payday loans “satisfy a real financial need within a certain segment of the population.” As I cite these authors, I’m fully willing to concede that there is literature out there that disagrees with their claims. The reading list I composed earlier lists some of those papers. In a future blog post, I will attempt a more detailed comparison of the methodologies employed in the different studies.
3. If payday loans are useful, then limiting or eliminating the payday loan market will drive consumers to underground or black markets. This is not favorable, for reasons that should be self-evident.
4. I think the most legitimate critique of payday loans is that it disadvantages the politically weak who have, for example, little access to legal recourse. If that’s the case, the better solution would be to reform the political/legal apparatus, rather than the payday loan market. Opponents can argue that this is less feasible, and they would be correct, but if the market is driven underground, then these people would have no legal recourse anyway.

My main concern now is the third. Those who seek to regulate payday loans toe a narrow line between tempering the market and hobbling it. Unfortunately, it looks as though the proposed reforms are poised to do the latter.

The post Will Payday Loan Regulations Kill the Market? appeared first on Show-Me Institute.

Read the entire piece. Note the constant begging-the-question, asserting that there is a problem with payday loans without ever attempting to prove it. Enjoy the absolute lack of economic analysis in the piece. Consider the obvious unintended consequences of this, which are not even remotely acknowledged. Discuss the assumption throughout the piece that the state must have a role in limiting private, legal business transactions between free adults. Then come back here in two weeks or so, after we do some economic video performance art, chronicling my plan to take out a payday loan a week from Monday and use the money to go gambling.

The post Lack of Economic Basis For Payday Loan Limitations appeared first on Show-Me Institute.

1. Payday Holiday: How Households Fare after Payday Credit Bans (ungated), Donald P. Morgan and Michael R. Strain.

   “Compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems—contradicts the debt trap critique of payday lending.”

2. The Economics of Payday Lending (ungated), John P. Caskey, Swarthmore College.

   General overview of payday lending industry and basic issues. Written for a lay audience.

3. Do Payday Loans Cause Bankruptcy? (ungated), Paige Marta Skiba and Jeremy Tobacman.

   “Though the size of the typical payday loan is only $300, we find that loan approval for first-time applicants increases the two-year Chapter 13 bankruptcy filing rate by 2.48 percentage points.”

4. Factors Affecting the Location of Payday Lending and Traditional Banking Services in North Carolina (ungated), Mark L. Burkey and Scott P. Simkins.

   Explores the geography of payday loan institutions. “A key finding is that after controlling for many covariates, race is still a powerful predictor of the locations of both banks and payday lenders.”

5. The Profitability of Payday Loans (ungated), Paige Marta Skiba and Jeremy Tobacman.

   “Despite charging effective annualized rates of many thousand percent, we find lenders’ firm-level returns differ little from typical financial returns. The data are consistent with an interpretation that payday lenders face high per-loan and per-store fixed costs in a competitive market.”

6. Quantifying the Economic Cost of Predatory Payday Lending (ungated), Keith Ernst, John Farris, Uriah King:

   “Our analysis of quantitative data reveals that payday lenders collect the vast majority of their fees from borrowers trapped in a cycle of repeated transactions, where borrowers are forced to pay high fees every two weeks just to keep an existing loan outstanding that they cannot afford to pay off.”

7. A Comparative Analysis of Payday Loan Customers (gated), Edward C. Lawrence and Gregory Elliehausen.

   “By analyzing the data collected in a national survey of payday customers, this research allows policymakers to better understand what type of consumer borrows from payday lenders, for what purpose, and what the true benefits and costs are. The results confirm a strong demand for payday loans that satisfy a real financial need within a certain segment of the population.”

8. Mayday Payday: Can Corporate Social Responsibility Save Payday Lenders (ungated), Carmen M. Butler and Niloufar A. Park.

   “In this article we ask what the best ways are to maximize the wealth of the payday lending industry while limiting the industry’s harmful impact on consumer communities? We assert that payday lenders will likely demonstrate greater corporate social responsibility only after there is a change in the laws that govern the industry coupled with industry-wide reform in corporate governance.”

9. Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap (ungated), Jon Zinman.

   “Borrowing fell in Oregon [after interest rate caps] relative to Washington, with former payday borrowers shifting partially into plausibly inferior substitutes: bank overdrafts and late bill payment. Additional evidence suggests that restricting access caused deterioration in the overall financial condition of Oregon households. Overall the results are consistent with restricted access harming, not helping, consumers on average.”

10. Consumers’ Use of High-Price Credit Products: Do They Know What They Are Doing? (gated), Gregory Elliehausen:

    This paper asserts that consumers of payday loans are sufficiently rational. A caveat, however, is that rationality is a just a process and does not imply that “good” decisions are made.

Some op-eds include:

• In Defense of Usury (gated), by Dean Karlan and Jonathan Zinman
• Congress Takes Aim at Payday Loans (ungated), by Robert DeYoung
• Payday Loan Reform Bad for Borrowers (ungated), by Justin Hauke

The last of those op-eds was written by a former employee of the Show-Me Institute. Perhaps unsurprisingly, my views on payday loans are fairly similar to his. Taking an economic view, I’m concerned that regulatory reform will be unable to limit payday loan harms effectively without driving the market underground. Taking a political view, I view payday loan consumers as sufficiently rational and believe that a government (at least in this arena) has more of an imperative to maintain free, private contracts than to protect the politically weak.

The post Payday Loan Reading List appeared first on Show-Me Institute.

Here is my advice to every person in Missouri: Stay away from the payday loan industry; the vast majority of the time, it is a terrible financial decision to make use of it. Here is my advice to the government: Stay away from the payday loan industry; it is not your role to interfere in private contracts and prevent people from making poor financial decisions.

Then there are the unintended consequences that would result from eliminating, or severely restricting, the industry. It is not as though the people who now use payday loans would suddenly no longer have any need for a loan. Some would move into receiving loan services from the banking system (a good result), some would entirely lose the ability to obtain credit (a mixture of both positive and negative results), and some would turn to the loan shark industry with all of its attendant risks, violence, etc. So, if you want to improve the climate for loan sharking and enforcing collections with baseball bats, then by all means legislate the payday loan industry out of existence.

This set of arguments about payday loans has also been covered by Show-Me Institute op-eds superior to this blog post.

The post Payday Loan Industry Bad; Mob Racketeering Good appeared first on Show-Me Institute.

Show-Me Institute authors have previously written a few blog entries and op-eds pointing out that, for the vast majority of borrowers, payday lending is a useful service in a tough time. As Katherine Mangu-Ward argued in an indispensable discussion of the industry in Reason magazine:

As horrifying as 400 percent annual interest sounds, it doesn’t reflect the experience of the typical borrower. No one keeps a payday loan for a year; that’s not how these things function. Payday lenders charge about $15 per $100 on a seven- or 14-day loan, plus another $20 or so in fees. They check your paperwork and then give you $100 in cash. You leave a post-dated personal check as insurance and promise to come back in two weeks with $135. If you show up empty-handed, or not at all, they cash your check. If the check bounces, the firm sends debt collectors after you—not the knee-breaking kind, but the same guys who interrupt your dinner when you miss a couple of credit card payments. If you miss your deadline to repay, the lender refuses to deal with you again. Nine out of 10 customers pay on time. […]

What happens when a rate cap is imposed statewide? Dartmouth economist Jonathan Zinman looked at the payday lending industry in Oregon, where in 2007 an effective cap of $10 per $100 borrowed was imposed along with a minimum borrowing term of 31 days. (In neighboring Washington, by contrast, the standard is $15 per $100 and there is no minimum term.) Oregon’s Consumer and Business Services Department reported 346 licensed payday lending outlets at the end of 2006, six months before the cap kicked in. Seven months after the cap took effect, that number had fallen to 105. In September 2008 it was 82. In a December 2008 working paper, Zinman concluded that former payday customers in Oregon ended up using less desirable alternatives such as overdrafts and utility shutdowns, and that “restricting access caused deterioration in the overall financial condition of the Oregon households.” In summary, “restricting access to expensive credit harms consumers.”

A February 2008 study for the Federal Reserve Bank of New York found similar results: “Compared with households in states where payday lending is permitted, households in Georgia [after a May 2004 ban on payday lending] have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate,” wrote Federal Reserve research economists Donald P. Morgan and Michael R. Strain. In North Carolina, where payday loans were banned in December 2005, “households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check ‘protection’ sold by credit unions and banks or loans from pawnshops.”

Two weeks before I got my loan, new restrictions took effect in Virginia, including a rate cap of 36 percent. As predicted, payday lending chains are now fleeing the commonwealth. Check ’n Go stopped originating loans in Virginia and will soon close its 68 storefronts and fire its 100 employees. The State Corporation Commission counted 630 payday lending stores in April, down from 786 in December.

As well intentioned as I’m sure Still is, Virginia’s experience shows that a 36-percent ceiling on interest rates will force lenders to shut down and consumers to turn to even costlier alternatives.

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