imageThere are certainly worse influences in poor communities than payday lenders, but those influences tend be involve acts of God and/or organized street gangs. Barring that, there's little you could plan better than effectively removing banks and making the only instruments of financial planning one of the half-dozen check cashing and payday lending places within a two mile radius.

Ohio, along with several other states, took steps to ban payday lenders, limiting the amount of interest that any one entity can charge. The payday lending industry, in turn, has picked up the mantle of consumer crusader:

“You can’t make a payday loan cheaper than the industry does,” said Steven Schlein, a spokesman for the Washington-based Community Financial Services Association of America, which represents lenders.

Mr. Schlein said lenders had left other states that had recently capped rates at 36 percent or lower. “Consumer choice has always worked best,” he said. “That’s what drives prices down, not eliminating competition.”

Which, given the proliferation of payday lending places in poor communities, means that their interest rates should probably be around 4% or so, right?

In Ohio, payday borrowers paid more than $318 million in fees annually and an average yearly interest rate of 391 percent before the new restrictions, according to a study released by the Ohio Coalition for Responsible Lending.

...Oh. But hey! It could be worse. They could be charging five hundred and ninety one percent, which would, we all admit, be sort of silly. Sub-400% interest rates fill a much-needed niche, while anything over that is damaging. This, my friends, is "competition" is action.

But, you might ask, aren't payday lenders not just competing among themselves, but with banks and credit cards? You might think that, but in general, the people they're preying on serving don't have easy access to banks and don't have the credit record or history to get the necessary credit. Alas, the comparison must still come:

“Ohio politicians took away a financial choice that customers prefer, forcing them to use less desirable alternatives like bounced checks and credit card late fees at much higher rates,” said Kim Norris, a spokeswoman for a group formed by the payday loan industry called Ohioans for Financial Freedom.

Here's the problem - bounced checks and late fees are punitive measures. The case payday lenders are making is that they offer a better and more straightforward form of punishment than other alternatives. Many of the people who get in trouble with payday loans are people who pay on time, but can't pay off the entire amount - the entire industry is based on the idea that they're supposed to serve as a punitive measure against anyone who uses them. Credit card companies and banks make the most money off of people who screw up, but at least generally extend you the benefit of entering into the relationship under the presumption that you won't. Payday lending starts out as a form of punishment, and then usually gets compounded as, well, people get punished.

Perhaps there's a good argument for an industry that assumes the necessity of fucking over everyone who walks in the door, but the general point of public policy should be to prevent such things wherever possible.