Regulate rather than prohibit payday loans

Many states across the U.S. have either banned payday lending, capped interest rates on lending, or are working to ban this form of lending in the past decade. North Carolina is one state that made payday lending illegal in 2006, forcing those who need cash quickly to either go online for payday loans or look to friends and family to borrow money. David Stoesz, a professor at Mississippi Valley State University, writes in the North Carolina-based News Observer why making payday lending illegal may hurt borrowers.

As Stoesz explains in his op-ed, payday lending is especially critical for those who don't have a credit history. After the recession hit in 2008, many families saw their income decrease, and the use of payday lending across the country increased as a result, proving that this form of lending continues to be necessary. That is especially true since overdraft fees or those for a bounced check are much higher than a payday loan. When payday lending is made illegal, the industry is often run underground, out of government regulation and oversight, which is the opposite of what the law intended to accomplish. 

Instead, Stoesz says, working for more regulation and inclusion should be the goal.

"Regulation, on the other hand, allows operation in the open, affording a measure of surveillance, permitting government to tax transactions as well as a means for penalizing noncompliant operators," he writes.

Additionally, by encouraging other financial institutions to include these types of loans by using credit and risk management tools, the traditional payday lending clientele would have more options than if the industry shut down. Since more than 24 million people in the U.S. are underbanked, choosing to eliminate payday loans can have a large effect on not just this population, but the banked population as well. 

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