The Potential Problems of Proposed Payday Lending Restrictions

For decades, Las Vegas has been considered a great place to go for fun and excitement. There are lots of neon signs and shows that are produced to dazzle audiences. All the signs you see, however, are not for casinos or shows. There are also plenty of pawn shops and payday lenders that do business in Vegas, and they use the town’s tricks of the trade to attract customers. In a city that thrives on cash flow, it is easy to understand why payday lenders do great business in Las Vegas.

Not Everyone Loves Payday Loans

While the guy who wants to get a little cash for a night on the town may be a big fan of payday loans, there are plenty of people who don’t like them at all. There is a bit of controversy surrounding these loans, as some people are upset that lenders charge seemingly expensive fees on the loans they make. Those who are looking to regulate the industry further say that payday loans are predatory. This charge continues to be made despite the fact that payday loans have provided much needed emergency cash to millions of lower-to-middle income households over the years.

Dr. Stephen Miller is the Director of the Center for Business and Economic Research at UNLV. In discussing payday loans, he said, “A large group of people in the economy can’t qualify for traditional lending. Most of the borrowers are living from paycheck to paycheck and don’t have many options in terms of borrowing.”

Who uses payday loans?

There are hundreds of online payday loan sites and over 20,000 physical locations. Payday loan customers spend over $7 billion a year at these locations. So what does the average payday loan store customer look like? According to a Pew Study from 2012, most payday loan customers are white females between the ages of 25 and 44. The study went on to say that people without four year degrees, those who rent their homes, who earn less than $40,000 a year or are separated/divorced are among the most likely people to regularly use payday loans.

Patrick Lombardo is 25 years old from Las Vegas. He said that he has used payday loans four different times over the past year and a half. He used the money he borrowed to pay for utilities or rent while he was a full time student working part time to make ends meet. Lombardo said that he dropped out of high school, so he didn’t qualify for educational grants. These conditions all made it difficult for him to pay for his living expenses and tuition.

Lombardo explained why payday loans were helpful to him by saying, “I had no other options. My parents are both retired and barely have extra money. I don’t have a vehicle in my name for a title loan, and I don’t own a home, so I have nothing to borrow. Since I’m a college student, I also have poor credit. This is a bad industry in terms of it being predatory, but on the other hand, it’s a necessary evil for people like me who have nowhere to go.”

How many people are there in situations similar to Mr. Lombardo’s? Millions. These folks may not enjoy having to take out payday loans, but they certainly need a resource to turn to for fast cash when they have bills to pay. If the CFPB gets its way and regulates the industry to the point of crippling it, millions of people may find themselves in situations where they have nowhere to turn to get money for emergency expenses and bills.