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What a Bestseller Book Tells Us About Payday Lending

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The memoir of J.D. Vance “Hillbilly Elegy” was a huge success last year. It was one of the most acclaimed and talked-about of the summer. The story of Vance, his troubled childhood, days spent in abject poverty, and how he fought out of it, is very inspiring. All readers and even the critics praised how Vance was able to portray the hardships he faced so frankly. But his story is not the only one. Millions of Americans are fighting the odds to stay afloat and make their lives a little better.

Hillbilly Elegy has been recommended because it helps us understand the many facets of American culture and society. Robert Pondiscio from the U.S. News, Helen Andrews from National Review, Clarence Page from the Chicago Tribune and many others have said it is a must read. Clarence says, “Vance helps us to understand how shrinking opportunities for low-income whites helped to fuel the rise of Trump”.

There are other reasons as well why you must read this book, if you haven’t done so already. The book shows that too often, lawmakers and government officials come up with regulations and restrictions that are not in the best interest of the very people they are expected to help and support. There is a huge disconnect between what they perceive to be good, and the actual realities.

This is best understood from a passage in the book about payday lending.

Ohio’s Short-Term Lender Law

J.D. Vance had a troubled childhood and he came from an impoverished background. So at a point in his life, Vance used to do three jobs all at the same time so that he could pay for his studies while at The Ohio State University. One of these jobs was with Bob Schuler, a state senator. While he was working for Schuler, the senate considered the Sub.H.B. 545 bill “that would significantly curb payday-lending practices”.

According to the proposals, payday loans would be capped at a maximum of $500, the loan duration would be for a minimum of 31 days, and lenders wouldn’t be able to issue loans more than 25 percent of a borrower’s gross salary. These restrictions were against the fundamental principles of payday lending.

Only four state senators decided to vote against this bill, and Bob Schuler was one of them. The bill was passed and Governor Strickland made this law on June 2, 2008. It came to be known as the Short-Term Lender Law.

J.D. Vance came from an impoverished background and belonged to a community where people were living from one paycheck to another. Surely, he would have resented the senator for deciding to vote against the bill. Surely, Vance would have seen payday lenders as exploiters, as they were being described by almost everyone else.

J.D. Vance Was Against the Bill Too

But Vance did just the opposite. He thanked senator Bob Schuler and even applauded him for his stand. In his book, Vance says Schuler was one of the few people who understood the everyday practical realities of the lower-income citizens of the state. This is what he says in the book Hillbilly Elegy, “The senators and policy staff debating the bill had little appreciation for the role of payday lenders in the shadow economy that people like me occupied”.

Criticizing the senators who voted to pass the bill, Vance further says in the book, “To them, payday lenders were predatory sharks, charging high interest rates on loans and exorbitant fees for cashed checks. The sooner they were snuffed out, the better”!

The Experience of Vance Tells a Different Story

What the author had to go through himself and the experience he gathered gives him a perspective, which goes against the elite opinion, and so Vance says, “payday lenders could solve important financial problems”.

Why Payday Lending is Good for the Economy – Vance

Payday loans are often the only option for people without a credit card or those who cannot get a conventional loan. Many of them have taken bad financial decisions in their lives, in situations where often they had no control or decisions where they cannot be blamed. Vance clearly explains the situation in his memoir, “As a result, if I wanted to take a girl out to dinner or needed a book for school and didn’t have money in the bank, I didn’t have many options”. Only payday loans filled up this critical credit gap.

Vance then goes on to narrate an interesting story when he didn’t have enough money in the bank to even pay the rent to his landlord. Vance didn’t have the paycheck with him, and so there was no money in the bank to pay the rent. So he took a short-term payday loan, and was able to pay the rent check to his landlord with it.

That was an important lesson for him, which he hasn’t forgotten since then. “On that day, a three-day payday loan, with a few dollars of interest, enabled me to avoid a significant overdraft fee. The legislators debating the merits of payday lending didn’t mention situations like that. The lesson? Powerful people sometimes do things to help people like me without really understanding people like me”, he says.

What Happened in Ohio After the Short-Term Lender Law Was Passed

When Vance took his payday loan and paid the rent, the minimum loan duration in the state was 14 days. That was raised to 31 days after the bill was passed. So consumers could still take a loan if they wanted to, but ended up remaining in debt for a longer duration of time. As a result, they had to pay more money to the lender towards interest for the longer loan term.

This proves, a longer minimum duration is not in the best interest of consumers. They ended up losing out, all because the lawmakers and regulators wanted to protect them against the so-called exploits of payday lenders.

The passage from what Vance has said in his book is an important narrative. It is one of the many case studies, which shows how well-intentioned regulations can lead to unintended consequences and eventually be bad for the very people they are expected to protect.

We suggest, regulators and state legislators must read Hillbilly Elegy. People at the CFPB or the Consumer Financial Protection Bureau should also go through this book carefully before deciding. They need to have better understanding of the ground realities, and the real requirements of the common American. Enough has been done to cripple payday lending already. They should think twice before passing new regulations. A reality check is needed. Talk to the common man who is trying desperately to meet both ends, before deciding.


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