Citizens should be free to make financial choices

ONE reason government can quickly become overreaching is the impulse to “protect people from themselves.” While that motive is understandable in some circumstances, it can fuel a regulatory state that limits individual freedom and impedes progress.

An example of this can be seen in opposition to House Bill 1913, by Rep. Chris Kannady, R-Oklahoma City, which would create the “Oklahoma Small Loan Act.” Under the bill, payday lenders would be allowed to provide unsecured loans of no more than $1,500 for periods no greater than one year and charge interest rates of 17 percent per month.

For most Oklahomans, such loans are bad deals. As the Oklahoma Policy Institute notes, the interest rate translates into an annual percentage rate of 204 percent. “Borrowers could be charged cumulative interest of $2,108 on a 12-month, $1,500 loan,” OK Policy writes in advocating against passage of the bill.

Yet even if HB 1913 becomes law, no one is forcing anyone to take out one of these high-interest loans. And the bill would require lenders to provide customers with a written explanation, “in clear, understandable language,” of all associated fees and charges. Also, lenders could not ban prepayment of a loan.

Lenders are subject to state investigation. A determination of fraud can result in loss of licensure and repayment of all fees to borrowers. Civil and criminal penalties may also be pursued against a lender.

Just because a loan may not be a good deal doesn’t mean those who take out such loans are ignorant, as polling conducted last year by Global Strategy Group and The Tarrance Group for the Community Financial Services Association of America demonstrated.

The nationwide survey involved 1,000 payday loan borrowers, including oversamples of 321 black payday loan borrowers and 300 Hispanic payday loan borrowers.

More than nine in 10 borrowers polled agreed that payday loans can be a sensible decision when facing unexpected expenses. The poll found 96 percent of borrowers said they had found payday loans useful, with 66 percent saying such loans were very useful. Seventy-five percent were likely to recommend payday loans to friends and family.

Moreover, 96 percent of borrowers said they understood how long it would take to pay off their payday loan and the finance charges they would face — before they took out the loan.

And, 72 percent said they received better treatment from their payday lender than from a bank or credit card company.

Opponents of Kannady’s bill note consumers can already obtain “A” loans (more than $1,470), which carry a maximum interest rate of 30 percent, and “B” loans (up to $1,470) that involve maximum charges of $394 over a 12-month period.

Ultimately, consumer preference should drive this debate. If low-income borrowers prefer the lowercost “A” and “B” loans to the “small” payday lending loan authorized by HB 1913, then the former options will dominate the market.

By all means, government should aggressively target fraud. Otherwise, adults should be allowed to make financial decisions for themselves rather than have politicians at the Oklahoma Capitol make those decisions for them.