Poor Poor People

There's a big difference between illegality and immorality. Many - perhaps even most - things that are immoral shouldn't be illegal. I think most people would agree that things like making fun of people in horrible ways or cheating in a high school football game are seriously reprehensible acts... that the government should not spend any time policing.

But many people often lose sight of this principle when it comes to a few topics, one of which is pay-day lending. In short, pay-day lending is the practice of loaning money to someone over a short period of time (like 2 weeks) and charging them something like 20-40 cents on the dollar for that loan. Obviously people who use this service are pretty desperate for the cash at the time, and they usually have to produce a pay-stub (so they likely have a job) as proof that they will get paid in the future and are good for it.

You're probably not human if this doesn't strike you as "taking advantage of people who are down on their luck," which clearly implicates the question of morality, but should this be illegal?

This is an interesting article about efforts by politicians to ban or heavily regulate this practice, and it explains why those policies actually end up leaving many people worse off.

But regardless of how it ends up benefiting or harming people's lives, the argument for heavily regulating or banning this practice is rooted in morality alone, at best, and bald-faced paternalism at worst.

Of course the argument is displayed with a handy catchphrase - "Predatory Lending" - which lends itself to the morality issue, these people are taking advantage of the poor! And, maybe they are and that seems wrong. The more nauseating, insulting and anti-freedom form of the argument is rooted in the idea that these poor people don't know any better. That they can't do a decent job of evaluating the price for having the money now versus waiting another week or two, that they will pay any price to get an extra 200 bucks so they can run out and buy spinning rims or a flat screen TV. Really, the paternalism argument is inseparable from the morality argument: in order for people to be "taken advantage of" they have to be signing up for something they don't understand, or have little to no choice.

But that's just not the case. At least according to the article, the terms of these loans are clear ("in large type, outlined in a gray box, was the amount of money I would have to pay the company when my loan came due") and there are a host of other options simply through a robust lending market ("there are more than 20,000 payday lending outlets, more than all the Starbucks and McDonald’s stores in the country combined") or borrowing money from friends, using credit cards or even just accepting bounced check or overdraft fees.

The government heavily regulates the credit card industry and that seems to make a good amount of sense because those services are based largely on - and the regulations seem to target - screwing you over with fine print and changing terms. In other words, when you innocently trigger section 38, subpart b(43) of your credit card agreement and they jack your interest rate up to 50%, you've effectively been had because you didn't really know that was part of the deal. But if a credit card offered you a one paragraph contract that said "You get our card, everything you charge on it will be paid back at 50% interest. Enjoy!" and you, in your ignorant but well-informed and fully-comprehending glory, thought this made sense, the government should step in an tell you that's just no good? That they know better than you? (Well, maybe they do, I mean 50%!? what is wrong with you?) If you're bad with money, or just delayed gratification in general, does taking away one of your options help you make better decisions overall? Maybe you're totally hopeless and the government really is hooking you up here, but even if they do know better in the case of your hopeless ass, how is it their decision to make for everyone everywhere?

That's really the question here, if two separate private parties agree to exchange money and services on completely clear terms (in a market with reasonable competition) how is it at all appropriate for the government to regulate the terms themselves?