Lawmakers across many states in the US have passed a number of regulations over the last few years severely limiting or preventing payday loans. Sometimes also referred to as quick cash loans or installment loans, there has been serious repercussions as a result. Quite a few states have completely banned these loans, saying that this leads to debt trap, though many analysts and experts aren’t quite sure about this conclusion. In many places where severe limitations have been placed, the number of payday lenders has come down drastically.
However, in spite of all these measures, payday loans have remained popular for years, revealing a fundamental need for these cash advances for lower income group people, and their popularity among the masses. For instance, in Alabama, people took more than 2 million such loans in 2015, with the average loan in the state being $326. 246,824 borrowers in the state approached lending agencies for money. These loans remain popular all along the Mississippi Delta.
Also, research carried out by Future Finance has discovered that 31 percent students from all types of backgrounds depend on these sources for covering their university expenses. The study was carried out among 1,000 full-time students. Often it is said that only people from poor backgrounds, and the blacks, Hispanics and Asians take these loans. This study shows that it is just a myth. It is also said that those who need payday loans have poor financial management skills. But the study found that 63 percent of the students who asked for financial assistance have good knowledge of finance.
The Finding in Utah
A new study carried out in the US state of Utah further reveals that all these regulations and ordinances passed in recent times have had little effect on payday lending. This proves once again that a lot of people, cutting across virtually all sections of the society have a basic necessity for payday loans, when they face financial emergencies.
This particular study was carried out by the University of Utah. It shows there has been little effect on payday lending in spite of the many ordinances passed to regulate such loans. This is a remarkable finding, because some people are of the opinion that payday lending rates in the state are among the steepest in the United States.
Utah Cities Were Among the First to Adopt Ordinances
The cities in Utah were among the first ones to adopt ordinances that limited the number of these loans people could take. Utah was also among the first states that limited the number of payday loan stores by population, and required a minimum distance between them.
So the ordinances have been in place for some time. Those supporting them have tried their best to prevent payday lending. But these quick cash loans remain popular nevertheless. Isn’t this a complete rejection by the people of what the regulators think are good for them? Let the people have their say!
Nathalie Martin from the University of New Mexico, and Robert N. Mayer from the University of Utah, the researchers, agrees. In the study, they looked at the results of reigning in payday lending in Dallas, Salt Lake County, and the Silicon Valley of California. A case study was included on how 11 Salt Lake County communities came up with ordinances for limiting how many payday lenders can operate in the regions, and their proximity to one another.
Quoting activists who had earlier wanted these ordinances, the study concludes by saying that little has been achieved. That’s because, payday loans remain as popular as before. For instance, President of the Coalition of Religious Communities, Art Sutherland, says there hasn’t been much of a change in the number of stores offering payday loans, a clear indication that these loans remain popular.
“It may be a little hard to shop around because you are going to need a car instead of being able to walk from one store to another. But borrowers can still take a loan easily. Perhaps we misunderstood what the requirements of the people are”, he says.
Christopher Peterson, a law professor at the University of Utah, who has been at the forefront of criticizing payday lending, agrees. He says there has been little effect of all these local regulations overall. So perhaps it is time to take another look at whether we did the right thing, he added.
More Payday Lenders Than Burger King, McDonald’s
An indicator of how popular payday loans are in the state is best demonstrated by the fact that there are 553 stores offering them in Utah, even after so many ordinances. In fact, there are more such stores than the combined number of Burger King, Wendy’s, McDonald’s, and Subway restaurants in the state.
Wendy Gibson, who is a spokeswoman of the state’s payday loan businesses, the Consumer Lending Association, says lenders believe these ordinances have had almost a zero effect on people, because there is a real need in the society of getting financial help when in an emergency. In the absence of any other practical alternative, residents of the state will always approach the lending businesses.
Phillip Hill from Midvale has observed the number of payday lending businesses in his community come down from a dozen to about nine. However, according to him, this wasn’t because of the ordinances, but because, there were too many lenders in the first place. The one’s that closed lose out to the competition, he says. He cannot find any signs that the demand for payday loans have dropped, Phillip adds.
Improve the Economy Instead of Targeting Payday Lending
All over the United States, including the state of Utah, lawmakers have imposed a variety of restrictions to prevent or at least limit payday lending. This has been going on for many years now. But this has not helped. Payday lending has not contracted overall. Their demand has not gone down.
That’s because, people still need more cash when in an emergency. Their pay, earnings need to go up. A lot of Americans are still outside the banking system. The banks and conventional lending systems are still unwilling to offer short-term credit. Most Americans still don’t have adequate savings they can fall back on.
These are the real worries of the economy, and not the payday lending companies, which are legal businesses. If you don’t want payday lending, first focus on the economy. Improve it. Give people better jobs that pay well so that they can save money after spending on their basic requirements. That is the way to go.
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