Posts Tagged ‘cfsa deregulation’

19
Mar

Possible effects of payday lending deregulation

Posted by Sara M. Varese

Need Cash NowRecent papers written by Kansas City Feds suggest that payday lending deregulation might result in positive side effects, including decreased interest rates and better options for customers, summarized below.

By removing regulations such as caps on interest rates, barring of local banks, thrifts, and credit unions from providing payday loans, the marketplace will result in a competitive environment amongst payday lenders that will give customers more options to choose from.

Reducing the number of entities offering payday loans means reducing payday lending competition.  If borrowers have the option to borrow short term small cash loans from their own banks or credit unions, they may be less likely to use the services of payday lenders, unless they can get a better deal there, which will encourage payday lenders to do just that – give customers a better deal, breeding competition amongst banks and lenders.

The paper continues to suggest that putting caps on interest rates could mean setting an interest rate standard across all payday lenders.  Without an interest rate cap, lenders aren’t able to specify a “stable equilibrium price point to settle on.”  However, by setting an interest cap, lenders will all have the ability to agree upon a standard.

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