payday loan Assignment | Online Assignment

read this article about payday lending: Why It’s So Hard to Regulate Payday Lenders | The New Yorker.pdfPreview the document. Here is a link to state-level regulations on payday loans: http://www.paydayloaninfo.org/state-information (Links to an external site.). Read both & come back here to discuss your responses to the following questions:

An Internet search for payday loan turns up dozens of websites that promise “instant,” “easy,” or “no hassle” loans. What’s the cheapest rate you can find in your state? Would you consider borrowing at this price?
Payday lending is a financial market. Why do you think the market equilibrium interest rate is as high as it is, typically over 400% APR? Compare it to the typical rates on credit cards, which are also “unsecured” loans (not backed by any physical asset), and explain the difference.
Price ceilings hold down prices, but also cause shortages and transfer surplus from payday-loan store owners to borrowers. Knowing that, would you support a cap on payday loan interest rates in Alabama?

What would you expect the outcome of such a policy (interest rate cap i.e. price ceiling for payday loans) to be for buyers (borrowers) and sellers (lenders)?Georgia has long struggled to rein in payday lenders, but even ambitious regulations can’t always stop the
predatory practice.
PHOTOGRAPH BY MARK DUFFY / ALAMY STOCK PHOTO
Georgia’s founder, James Oglethorpe, an eighteenth-century social reformer, envisioned the colony as an
economic utopia—a haven for those locked in Britain’s debtors’ prisons. Oglethorpe petitioned King George
II to allow the country’s worthy poor a second chance in an overseas settlement, and then instituted laws that
sought to erase class distinctions while prohibiting alcohol and slavery. The experiment lasted less than two
decades, cut short by Spanish hostilities and resistance from residents who wanted to own slaves and drink
rum.
Despite the fact that Georgia didn’t become the debtors’ haven that Oglethorpe envisioned, the colony didn’t
entirely abandon its early principles. In 1759, it established strict limits on usury. But before long lenders
began challenging and evading such laws. In the late nineteenth century, the practice of “wage buying”
emerged, with creditors granting loans in exchange for a promise of part of the borrower’s future earnings.
Through the years, the practice evolved into the modern payday-loan industry, sometimes called the smalldollar-
loan industry; it spread across the country, particularly to urban centers, and now online. Throughout,
Georgia has remained at the forefront of efforts to curtail creditors’ most abusive practices, only to have the
industry devise new ways to get around them.
Object 7
And so when, in June, the Consumer Financial Protection Bureau announced new draft rules to protect
American debtors from exploitative lenders—the first federal regulation of the payday-loan industry by the
C.F.P.B.—advocates in Georgia began assessing the ways that the industry might be able to evade the rules.
(A disclosure: I work on economic-justice issues through the Debt Collective, an organization that I cofounded.
It does not address payday lending, specifically, nor operate in Georgia.) The rules, which are now
open to public comment, aim to crack down on lending practices that have been shown to target low-income
individuals and ensnare them in a cycle of borrowing at inflated rates. The vast majority of customers end up
taking out new loans to pay back old ones, racking up fees (typically ten to thirty dollars for every hundred
dollars borrowed) in a process that the C.F.P.B. describes as a “debt trap”—in the end, annual interest rates
can amount to between three hundred and two thousand per cent. The payday-loan market now accounts for
nearly forty billion dollars annually and serves more than nineteen million households a year. The new rules
attempt to make it more difficult for borrowers to roll over their loans, and also aim to cut down on the
number of times that lenders can take money out of borrowers’ bank accounts without getting additional
authorization. Most notably, it would also require some lenders to verify that borrowers have the ability to
repay a loan while still providing for their own living expenses.
Georgia’s experience, however, shows that even the most robust and well-considered regulations of the
payday-loan business don’t always have the desired effects. In 2004, the state passed a law that effectively
banned payday lending, by instituting an interest cap and setting stiff fines and criminal penalties for those
who flout it. While the ban has had a positive impact—it has been estimated that state residents have saved
more than three hundred and fifty million dollars thanks to its passage—it has not extinguished the industry.
As happened centuries ago, short-term lenders simply adapted, promoting alternative financial products to
sidestep regulation. The result was that Georgians who might once have taken out payday loans
(disproportionately, single mothers and minorities) now tend to hold auto-title loans or installment loans
instead.
Auto-title loans, in which people borrow by using their vehicles as collateral, are arguably the most
pernicious of payday lending’s mutant offspring: an estimated two million Americans borrow this way,
earning lenders four billion dollars in fees every year. They’ve become particularly pervasive in Georgia.
According to the Center for Responsible Lending, four hundred and nineteen car-title lenders were operating
in the state in 2016, one for every 18,402 adult residents. (Georgia ranks sixth among states in the total of
car-title loans, above California, which is much more populous.) The three largest auto-title lenders in the
country are also headquartered in the state. Payday lenders can garnish wages until a debt is settled—often
for years—but they can’t seize goods or assets. Title lenders can seize cars, even if the vehicles are worth
more than the principal owed.
With installment loans, which are also ubiquitous in Georgia, people pledge their possessions—home
furnishings, old VCRs—as security. Leah Knight, a single mother who works from home in the college town
of Athens, doing customer support for Apple, told me that she got trapped in a ballooning installment loan
from a company called Security Finance, which has storefronts throughout the South. She originally
borrowed three hundred and eighty-five dollars, in November of 2014. Across eight months, she paid the
company a total of six hundred dollars, but still owed substantially more than the amount that she had
originally borrowed. The lender, Knight said, had hustled her through pages of paperwork, failing to disclose
hidden costs, such as unnecessary life-insurance fees. Such fees are essentially a way for companies to evade
interest-rate caps in states where usury is restricted, as the investigative journalist Paul Kiel, of ProPublica,
has shown. Knight was able to get out from under her debt burden only after finding a revolving loan fund
called Common Wealth, which is run by the Ark, a small nonprofit in Athens. The program allows borrowers
to pay off the original lender in full, then reissues the loan at a manageable three-per-cent rate, in
collaboration with a local credit union. Knight called the program a “life saver.” (Security Finance did not
respond to requests for comment.)
Liz Coyle, of Georgia Watch, a consumer-advocacy group, told me that the new C.F.P.B. regulations
probably won’t significantly affect the way her state’s title and installment lenders operate. Until now, smalldollar
lenders have primarily been subject to state regulation. The C.F.P.B.’s aim of setting a federal standard
is sensible enough, but, in a conference call after the rules were announced, consumer advocates from
nonprofits in a variety of states, including Coyle, pointed out that the proposal contains some troubling
loopholes. The rules would still, for example, permit lenders to charge exorbitant interest rates and fees, and
to access borrowers’ bank accounts. What’s more, the ability-to-repay requirement only kicks in when a
borrower has taken out six high-cost payday loans in a year.
Predictably, the industry took the opposite view, arguing that the bureau has gone too far. “The CFPB’s
proposed rule presents a staggering blow to consumers as it will cut off access to credit for millions of
Americans who use small-dollar loans to manage a budget shortfall or unexpected expense,” Dennis Shaul,
the C.E.O. of the Community Financial Services Association of America, said in a statement. Another
lobbyist described the C.F.P.B.’s proposal as a “death sentence.”
While the proposed rules will raise the bar in regions where payday lenders operate with little or no
oversight, the impact on states that already have robust anti-usury restrictions on the books is less certain.
Echoing the concerns of other experts I spoke with, Coyle said that, as the draft is currently written, the
bureau risks legitimizing some forms of predatory lending. She foresaw that lobbyists in states with interestrate
caps could use the less stringent C.F.P.B. rules as an argument in their efforts to undermine or supplant
existing laws. The tactic has already been used in Pennsylvania, where lobbyists began circulating a memo
earlier this year that invoked the C.F.P.B’s forthcoming guidelines as a model for draft legislation that would
have legalized a problematic new loan product. “This rule invites bad actors to go around it,” Coyle said. She
and other advocates are calling on the C.F.P.B. to close the loopholes they have identified, and to make a
more aggressive commitment to backing up states with strong consumer-protection laws, before the final
regulations go into effect.
Instead of half-measures, some advocates would like to see officials set their sights on getting rid of payday,
auto-title, and installment lending altogether. Payday lending is already essentially off limits in fourteen
states and in the District of Columbia, and studies from North Carolina and Arkansas, both of which
eliminated payday lending in the past decade, show that borrowers there have been better off, a result that
stands in notable contrast to lobbyists’ emphatic claims about the devastating impact that reducing access to
their products will have on cash-strapped families. If the government’s goal were truly to eradicate predatory
lending, as opposed to simply reining in the industry’s most egregious practices, the simplest approach would
be for it to set an interest cap on all small-dollar loans. But this isn’t an option for the bureau, because it is
prohibited under the Dodd-Frank Act from regulating interest rates.
Another possibility would be the one offered by Mehrsa Baradaran, a law professor at the University of
Georgia, in her book “How the Other Half Banks”: using post-office infrastructure to provide an affordable
and public banking alternative, including low-interest short-term loans. Baradaran suggests that, given the
tendency for exploitative financial services to come back in more destructive forms in the face of regulation,
this would constitute a more systematic way of beating payday lenders at their own game. This idea has been
enthusiastically endorsed by Senators Elizabeth Warren and Bernie Sanders, whose surrogates recently
negotiated the inclusion of basic postal-banking services in the Democratic Party platform. Dozens of
developed countries, including Germany and Japan, already have such a system in place. With continued
concerted effort, the United States could, perhaps, be next.
This story was supported by the Economic Hardship Reporting Project, a journalism nonprofit.
• Astra Taylor is the director of the documentary films “Zizek!” and “Examined Life” and the author of
“The People’s Platform: Taking Back Power and Culture in the Digital Age,” winner of the 2015
American Book Award. She is a Shuttleworth Foundation Fellow and an EHRP Puffin Fellow.