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If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere. Switzerland

If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere. Switzerland is a wealthy low-crime country to start with, the mafia do not have a strong hold. For example the homicide rate in Switzerland is 0.54 per 100,000 people, by comparison in the United States it is 5.35 per 100,000 people.

ardy42 8y ago
>>> An underappreciated facet of payday loans is that without them desperate people would borrow from unsavoury people - making them illegal drives the high risk loan business underground into the hands of the Mafia. And then the consequences for the desperate people for defaulting is no longer bankruptcy, but broken legs or worse. > If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere. You could solve the loan shark problem and cap the interest rate by socializing the rest of the risk through some mechanism -- say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products. Obviously there are details to be worked out, but the burden of a policy to combat loan sharking does not have to fall on the most vulnerable.
- gruez 8y ago
  >say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
  - ardy42 8y ago
    > but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board. Perhaps, but I have little sympathy for the feelings of the better-off people who want to clutch every penny to the point that they are jealous of the help the needy might get. If they're able to block reforms, then I think efforts need to be made to change their attitudes.
evandijk70 8y ago
Most people will default before they will go to the mafia, which I think is a better solution than a payday loan
- verbify 8y ago
  I'm struggling to follow your argument. You can also default on a payday loan - I think defaulting is better than the mafia, which is precisely the benefit of payday loans - they add in a step where you don't go to the mafia.

ardy42 8y ago

>>> An underappreciated facet of payday loans is that without them desperate people would borrow from unsavoury people - making them illegal drives the high risk loan business underground into the hands of the Mafia. And then the consequences for the desperate people for defaulting is no longer bankruptcy, but broken legs or worse. > If you cap maximum interest rates then people who are deemed too 'high risk' will be refused credit. As a result, they will seek credit elsewhere. You could solve the loan shark problem and cap the interest rate by socializing the rest of the risk through some mechanism -- say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products. Obviously there are details to be worked out, but the burden of a policy to combat loan sharking does not have to fall on the most vulnerable.

gruez 8y ago
>say a regulation that requires TBTF banks to offer payday loans and make up for the loss through their other products but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board.
- ardy42 8y ago
  > but if banks are forced to make loans at a loss, aren't we effectively subsidizing people that don't repay loans? you might think this is a noble goal, but I'd doubt many people will be on board. Perhaps, but I have little sympathy for the feelings of the better-off people who want to clutch every penny to the point that they are jealous of the help the needy might get. If they're able to block reforms, then I think efforts need to be made to change their attitudes.

evandijk70 8y ago

Most people will default before they will go to the mafia, which I think is a better solution than a payday loan

verbify 8y ago
I'm struggling to follow your argument. You can also default on a payday loan - I think defaulting is better than the mafia, which is precisely the benefit of payday loans - they add in a step where you don't go to the mafia.