Laws aimed to protect poor borrowers from high interest rates have recently been overturned in many states. There are two sides to this debate:
The lenders who lobbied for overturning the maximum interest rates that could be charged argued that this was necessary to keep up with costs:
The lenders argued that interest rate caps had not kept pace with the increased costs of doing business, including running branches and hiring employees. Unless they can make an acceptable profit, the industry says, lenders will not be able to offer loans allowing people with damaged credit to pay for car repairs or medical bills.
Some lawmakers and concerned military Generals however argue that the law is unnecessary and will hurt poor borrowers:
“There was simply no need to change the law," said Rick Glazier, a North Carolina lawmaker, who opposed the industry’s effort to change the rate structure in his state. "It was one of the most brazen efforts by a special interest group to increase its own profits that I have ever seen."
Read more in the NYT article here: States Ease Interest Rate Laws That Protected New Borrowers
Do you agree or disagree with governments allowing these lenders to increase interest rates? Do high interest rates makes it harder for people with less wealth to rise up the socioeconomic ladder? Or do these interest rates help people who otherwise would not qualify for loans receive financial support? Other thoughts?
I think that people are often too quick to judge high interest rate loans. Defaults, collection costs, and late payments really do affect lending costs, and for some borrowers, interest rates above 25% are necessary for a lender to actually want to lend to them. If we set a limit on interest rates, people have one bad experience with credit may never be able to get loans again and rehabilitate their credit score. I think predatory practices should be regulated, but more along the lines of transparency than price controls.
ReplyDeleteI agree with Philip that setting an interest rate limit would prevent people with previous bad credit score from getting the loans again and it is not fair. And I think the process of giving loans to people should be taken into more consideration so the loans would not be given to people so easily.
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