Regulations Increase Costs, Not Decrease

Posted On: September 12, 2010 at 2:29 p.m.

Filed Under: attorney general payday loans regulations

As lawmakers across the country continue to attack the of payday loan industry, researchers have been looking into the effectiveness of lowering interest rates. Interestingly, it has been found that as the caps for interest rates drops, more money is being spent. It appears that the regulations are helping the industry or the consumer. “Payday lenders must refund portions of an upfront “origination fee” if borrowers pay back the loan early, state officials ruled earlier this week. The decision largely silenced the controversy over whether the payday loan industry was attempting to water down new regulations by dumping money into Attorney General John Suthers’ re-election campaign. (If he’s a shill for the industry, he’s not a very good one.) [[ads]] For supporters of HB1331, which passed narrowly this past session, the resolution was the final brick in a set of regulations meant to protect consumers from the insanely high interest rates charged by payday lenders in Colorado. But this isn’t to suggest that the industry has been unregulated. Along with setting other limitations, a law passed in 2000 capped the fee for the short term - typically two week - loans at the equivalent of 300% annual interest. The new regulations, which set the cap much lower, go into effect in November. But there’s an interesting study worth checking out on the effect Colorado’s current law had on payday loan fees over time. In 2009, University of Kansas economist Robert DeYoung found that rather than driving interest rates down, the regulatory cap actually caused the costs for payday loan borrowers to go up” (http://facethestate.com/by-the-way/19306-new-payday-loan-regs-ceiling-or-floor).