Payday Lenders Out of Business–Good or Bad?

I taught entrepreneurship to senior undergraduates at a state university.

During my teaching, the students may have studied legal entities, accounting, finance for entrepreneurs, and marketing in prior courses, but then they had to apply what they learned.

They had to launch a business.

I always prefaced their assignment with this message: “You have a big responsibility to yourself and the community you will serve. Use your values when making your decisions.”

A Student’s Suggestion for a Payday Loan Facility

I was, admittedly, taken aback when one student came up with the business idea for a Pay Day Loan facility.

No matter what I would say, the student was adamant that ‘his’ business would not charge the typical 300% annual fee. 

So when I opened this discussion in the classroom, I was shocked to hear that some students supported this lender idea because “the people who use them have no other place to turn when they need money quickly.”

It is true that nearly half of all respondents to the annual survey of households in 2015 said they could not cover an unexpected expense of $400, or could do so only by selling something or borrowing money.

This is what the lenders say regarding a potential new ruling from the Federal Reserve Board:

“The proposed rules would devastate their industry and cut vulnerable borrowers off from a financial lifeline.”

Payday Lenders Out of Business–Good or Bad?

The new payday lending rule, once complete, will force many payday lenders out of business. But is that such a bad idea?

Google announced on Wednesday that it would ban all advertisements for payday loans and related products on its website because they often lead to unaffordable repayment terms and financial harm to consumers.

I wanted my entrepreneurship students to realize that though they could make money in this venture, that money comes with overwhelmingly proven distress to the borrowers.  I wanted these nascent entrepreneurs to realize they can be the solution.

Though an editorial in the New York Times might say: Government policies and federal spending could help to create good jobs and good pay, affordable education, and a safety net for potent economic forces.

I claim entrepreneurs have the ability to solve some of the most wicked problems in the world!