Recent studies have started to show that local economies with heavy payday lending are suffering as a result. While it is difficult to blame payday lending (as there is a huge correlation between stagnating economies and payday lending), it is interesting to see how the city of Anniston, Alabama, interprets the latest data. A recent study by Insight for Community Economic Development has had some harsh things to say about the payday loan industry. This information has brought to light some of the bigger problems people are having with the industry.
How Local Economies Suffer
The study released last March indicated that the payday lending companies cost the economy $744 million in 2011 and helped to lose more than 14,000 jobs. One would think that because they are so big, they are actually helping the economy (by paying taxes) and even providing jobs (for clerks, etc). It seems like neither of those things are happening, and there are many different reasons why the local economies are suffering as a result.
The first and most important reason is because payday loans reduce household spending. Interest rates are so high that people who want to pay them off don’t have any capabilities to do so. The vast majority of people who are dealing with the payday loan industry don’t want to spend money elsewhere because of the exorbitant interest rates that are applied to the loans.
This study indicates that these changing values and motivations are the cause of the local economy problems across the country. The study was conducted by a California based organization. That state is also trying to determine a solution for their payday lending problem, which has reached new heights. It is now the second worst state when it comes to lending.
Payday Lending and Legislation
Many states are recognizing the impacts that the payday loan industry is having on their small economies and they are focusing on changing the law to help the public cope. The vast majority of payday lenders are unable to handle the legislation that comes with local councils, but they have done a great job getting rid of legislation that impacts their ability to make money.
Most companies have spent a lot of money to lobby against legislation that would impact their ability to generate profits and revenue. Thankfully, public opinion is changing so much that it will be hard for them to overturn it all.
The future of payday lending looks grim in some cases because of public opinion. New legislation is passed every single day in small towns, and even though the larger state legislative bills are unable to pass, it shows there is public awareness. However, payday lenders are consolidating more and becoming larger companies capable of fighting these legal limits on their activities. Only time will tell what will happen with the industry.
