John Oliver’s destination du jour is the legendary fraudulent world of “payday loans” – short term unsecured loans that charge interest rates of 500 percent or even 1900 percent. In a little over twenty years, payday lending would have spread so quickly that there are now more of them than McDonalds: “Even Ebola looks at this growth rate and finds it impressive.”
Of course, the companies in the industry do a good job of lobbying the state governments to stay in business. In the end, for a hilarious piece, Oliver got Sarah Silverman to encourage people to explore alternatives – “the way it works,” she explains, “is that instead of taking out a payday loan, you are literally something else do ”- give your money away to those bottom feeders.
But funny as that is, it neglects a really serious political issue that isn’t just a lack of regulation of payday lenders: it’s a lack of options for financial services. People end up with payday lenders because things happen. Your car breaks down. Your plumbing has stopped working. You lose your keys and you need a locksmith. That’s when, as Dylan Matthews wrote, you’ll be glad to have it set up an emergency fund in the past. But we know that many midsize businesses don’t and end up relying on high-yielding credit cards to fill the void.
Many lower-income people cannot even qualify for credit cards or put together a large enough nest egg for banks to go to the trouble of offering them savings accounts. Payday lenders are rushing to partially fill this void because it is a very real void. To help people avoid the downward spiral of financial desperation that can ensue, you need another way to fill the void. Something like post banking – Small government savings and loan vehicles that could offer the service without making cuts anywhere near as large.