Feb 26, 2014 Philip Burgess
The short term lending industry is one of the most regulated financial sectors in the United States. However, lawmakers across the country are still taking aggressive steps to clamp down on short term outlets, despite the popularity of the products.
While the over-regulated environment has made it difficult for many small dollar lenders to operate, industry leaders will be encouraged by recent developments in South Dakota. According to South Dakota Public Broadcasting (SDPB), a bill that aimed to place further restrictions on short term lending businesses failed to make it past the House Commerce and Energy Committee.
The source reported that the bill would have capped the amount of money that consumers could borrow in a single small dollar loan, among other policies. Additionally, the draft would have allowed for the creation of a database to track borrowers' outstanding loan statuses.
Despite the call for more restrictions to be placed on the industry, the committee's actions made it clear that the potential changes would have been too restrictive. SDPB indicated that the bill failed by an 11 to 2 vote.
Short term products support economy
Putting more restrictions on short term products not only hurts the industry, but the economy as a whole. Data from the Pew Charitable Trusts found that short term borrowers spend more than $7 billion each year. More importantly, these consumers support 20,000 storefronts across the country, as well as hundreds of online outlets and banking institutions.
Limiting consumers' ability to take out short term loans could have an adverse impact on the national economy, which is something lawmakers need to note. In such tenuous times in which the economy is still in a state of recovery, it's important that the country's elected officials take the right steps to support financial growth for businesses. If they restrict small dollar lenders from extending credit to American consumers it may lead to economic stagnation.
Despite the negative impact additional short term regulations could have, officials in states across the country are still targeting the industry. It's surprising, considering that other financial service groups have not been subjected to the same oversight at the short term sector.
Instead of leveraging more restrictions on the short term industry, the nation's leaders should focus on educating consumers about short term products. The inaccurate assessments many officials have regarding the sector have created a negative perception of the industry among consumers. As a result, many borrowers don't properly understand how the products work. If they did, they may be able to plan and organize their finances in order to take out loans in a more responsible manner.