Competing with Sleaze Loans

Here’s something you don’t hear about every day.  Recently in Oregon the legislature felt pretty good about itself for passing a law that would restrict Payday Loan shops from charging excessive interest, like say 500%, for short term loans.  Now, those businesses pray on the poor and uneducated like no one, and on the surface this seems reasonable, not allowing the gauging of people who probably can’t really afford to take out a loan in the first place.  The default rate is astounding.

However, right after that bill passed, my state legislator sends me this:

One of the survey questions in my February newsletter asked you if you thought Credit Unions should expand and advertise their payday loan services. Your response was a resounding (90%) “YES”. I am happy to report that you will soon be hearing announcements on radio and television that will promote short-term loans that are offered by credit unions at interest rates far below those offered by the payday loan industry.

Here is why it matters: A $1000 payday loan at 500% interest costs a citizen $412 in interest in a month ($5,000 in a year) and can bring financial disaster to a family. A $1000 short-term credit union loan at 15% would cost about $12.50 in a month ($150 in a year).

At least 23 of Oregon’s 85 credit unions offer short- term loans. Credit unions also work to educate consumers about managing their money and building credit and wealth.

So we also get educated about Credit Unions competing with the sleazy Payday loan people, on the Government’s dime?
Why do we have to have both regulation AND public advertisement of competition?  This loan vehicle obviously didn’t just spring up, it’s been there.  But Credit Unions didn’t feel the need to advertise it, and meanwhile poor people are getting screwed.  But how much do you blame the people getting taken by crooks, when there are viable options out there, and they just lack the gumption or the resources to get them.  There had to be another answer other than regulation (which should be a last resort only when competition wasn’t working).  But competition is alive and well, and the solution to excessive interest short term loans has been there all along WITHOUT government intervention.