Payday lending Services should be banned

COUNTERPLAN: The Consumer Federal Protection Bureau will implement a national regulation on payday loans composed of the following four parts: 1. Rollovers (taking out a new payday loan to pay off the last one) are banned. 2. Consumers are limited to a single advance from a single lender of $500 at a time. 3. Interest rates cannot exceed 10 percent of the loan's face value. 4. Implement a national database to ensure compliance with (1) and (2). This counterplan is mutually exclusive with the resolution because you cannot simultaneous ban something and impose regulations on how it should be done. For the rest of this debate, I will argue that regulating payday loans is better than banning them, and that payday loans should not be banned because regulating them is better. In the world of the counterplan, consumers will be able to access the benefits of payday loans in an emergency when they can't scrape together enough cash to pay for an unexpected expense, but the ban on rollovers will encourage more responsible use of payday loans and prevent endless debt cycles. DISADVANTAGE - BUSINESS CONFIDENCE Businesses dislike regulation, because too much government regulation is bad for economic growth and recovery. http://www.economist.com... Some level of regulation is necessary for the payday loan industry, but too much regulation will hurt business. An outright ban, as opposed to rules that limit the worst of payday lending practices, will create an environment where other sectors of business will be afraid that they will be next. A ban would prohibit reasonable payday lending practices where everything is paid off by the actual payday, without rollovers or cyclical debt. The counterplan will not hurt general business confidence because it will not exceed what is expected, since it is less stringent than an existing CFPB proposal, which would require that lenders confirm that the customer has the ability to repay the loan. http://www.consumerfinance.gov... Business confidence is important for the economy because investors tend to be cautious if they see uncertainty or expect stricter regulation. The economy is recovering slowly https://www.washingtonpost.com..., and real unemployment is at 10%. http://www.cnbc.com.... A sudden ban on a whole sector of the economy would throw businesses into confusion and chaos. This would hurt the economy, leading to fewer jobs and more poverty, which is the root cause of the problem. This would also increase the risk of death from crime and preventable illness. DISADVANTAGE - DESPERATION People get payday loans if they are desperate - 85% of them for emergencies or important regular expenses such as food, clothing, and bills. http://www.pewtrusts.org... For some people, payday loans are the only option to pay for unexpected expenses. 17 million American adults do not have access to a bank account. https://www.stlouisfed.org... If people cannot get payday loans, some will have to cut back on basic necessities like food, clothing, and electricity, and others will turn to illegal loan sharks. The failures of Prohibition, the War on Drugs, and UN regulations against the use of mercenaries show that when there is demand for something, the market will create supply, even if it is banned. Even North Korea, the most oppressive government in the world, has a black market. http://www.reuters.com... 12 million people use payday loans each year. By eliminating the payday loans you either force them to cut back on basic necessities like food, clothing, and electricity, which is inherently dehumanizing to them, or to work with loan sharks who would charge higher rates due to the risks involved with running an illegal business, and could even use violence to collect if they are not paid. DISADVANTAGE - AUTONOMY It is easy for us to say that payday loans are bad if we have never had a need for one. As an upper-middle-class white American, I cannot see myself in a position where I would need a payday loan, so I must look to those who actually have been in such a position. And 12 million of those people have chosen to get payday loans. http://www.pewtrusts.org... By eliminating access to payday loans, we would be taking away the ability of these 12 million people to determine what is best for themselves. Who can decide better what to do in such a situation than the people who are actually in that situation? Taking away the autonomy of these people would be telling them that others in a position of privilege should be able to determine what is best for them against their own wishes - which implies they are inferior on a very deep level - implying that they are unable to make decisions for themselves. Now on to Pro's contentions: Introduction: Pro exaggerates the interest rate - the 390% annual rate would only apply if the loans were held for the whole year, without any principle being paid back, which does not usually happen. Compounding is implicit in the high interest rate used in Pro's argument. Pro says "the average payday loan borrower took out eight loans of $375 each per year and paid a whopping $520 in interest." This is an interest rate of 139%, not 390%. Cycle of debt: By preventing rollovers the counterplan establishes payday loans as something to be used in an emergency when consumers are unable the money they need by other means and prevents a cycle of debt. Faith-based organizations: These are great, but because the church is putting up its own assets as collateral and the rate is not high enough to financially justify the risk, they would not solve for all of the 12 million people who use payday loans. While this is useful advice for anyone reading this debate who is in need of a loan, Pro has no warrants to show that a ban on payday loans would increase the amount of faith-based lending. It actually would not, because these faith-based lenders are not operating out of the profit motive and are therefore not receptive to market effects like supply and demand. Installment loans: These are harder to get in an emergency. It is difficult for people who have no credit or bad credit to get an installment loan, and while it is not impossible, it's not something that everyone will have access to. https://www.nerdwallet.com... Installment loans are not a real improvement over payday loans. They suffer from the same rollover issues that payday loans do, and they can have APR as high as 800% - which actually is relevant because they are held long enough for compounding to have an effect. 77% of them are renewals of existing loans. Companies also use them to aggressively push insurance policies on their customers. http://business.time.com... Online alternatives: For Lendup, cross-apply my arguments about installment loans. For ActiveHours, it faces many of the same problems associated with payday loans. It does cost money - and the fact that the fee is discretionary will not stop it from creating debt cycles due to guilt - after all, people do feel an obligation to tip at restaurants and bars, and tipping is what they call it. Also, it is similar enough to payday loans that it would be illegal if all payday loans were banned. http://consumerist.com... As for the peer-to-peer lending websites, Pro does not explain how they are better, and also they might not accept people with very low credit. The claim that it is morally wrong does not automatically mean it should be banned. Cheating on your significant other is morally wrong, but it is not illegal. The same is true of many other things, and we do not all agree on what is "morally wrong", so saying that something is immoral does not prove it should be banned.