Yet there is remarkably little concern on the political left as to the actual consequences of the laws and policies they advocate. Low-income people often get short-terms loans when they run out of money to meet some exigency of the moment. The interest rates charged on such unsecured loans to people with low credit scores are usually higher than on loans to people whose higher incomes and better credit histories make them less of a risk.
Crusaders against such loans often make the interest rate charged seem even higher by quoting these interest rates in annual terms, even when the loan is actually repayable in a matter of weeks. It is like saying that a $100 a night hotel room costs $36,500 a year, when virtually nobody rents a hotel room for a year. Because those who obtain unsecured short-term loans are usually poor and often ill-educated, the political left can cast the high interest rates as unconscionably taking advantage of vulnerable people.
Exploiting ignorance
But similar principles apply to more upscale short-term lending to well-educated people who have valuable possessions to use as collateral. A small-time businessman who suddenly finds that he does not have enough cash on hand to pay his employees this week knows that if he doesn’t pay them this week, he may not have any employees next week — and can face lawsuits the week after that.
There is an upscale lending market available to such people, where he can use his expensive personal possessions as collateral to get the money he needs immediately. He can borrow more money than the poor can borrow, and at not as high an interest rate. But his interest rate can still be 200 percent if figured on an annual basis — even though he may be able to pay off the loan next month when his customers pay him what they owe him, so he is paying only a small fraction of that hypothetical 200 percent, just as the poor are paying only a small fraction of the hypothetical 300 percent or 400 percent that they are charged.
Editorial demagoguery against “predatory” lending might well be called predatory journalism — taking advantage of other people’s ignorance of economics to score ideological points, and promote still more expansion of government powers that limit the options of poor people, who have few options already.