A plan before Chattanooga City Council to restrict payday lenders touches at consequences of quick-cash loans but overlooks a cause — namely the abuse of employers’ holding back.
The proposal restricts all sorts of quick-cash lenders by corralling them into a “alternative financial services” category and seeing them “permitted as special exceptions” by City Council.
Members Carol Berz and Russell Gilbert want a freeze on the marketplace by preventing clustering of like outfits in the future as they serve a large group of customers who rely on quick loans to make ends meet before payday.
The pair tell City Council that pawnbrokers and check cashers bring neighborhood deterioration, prey on the poor, are “hurting us economically,” and charge outrageous fees and interest rates. Mr. Gilbert says payday loans trap poor people on a debt treadmill. Interest rates in Tennessee are capped at 15 percent per year, but lenders charge fees giving an effective higher rate.
The alternative financial services industry serves people who have bad or no credit. To account for high risks and cover losses, paydays charge more than banks and credit unions patronized by wealthier people.
Existing capital, not hot money
Elected officials are indignant that customers of quick-cash shops pay more effective interest rates than higher-quality people who patronize banks. But in serving these borrowers, companies such as Advance Financial do not participate in inflationary loan creation. Banks, credit unions and savings and loans operate on a fractional reserve and has effectively a license to steal. That is to say, a license to create circulating money ex nihilo, from nothing, in the extension of loans. Banks are inflationary, paydays are not. Banks participate the the debasing of the currency and the loss of buying power that injures the great and the small. Payday lenders lend not hot money, but existing money.
Cullen Earnest of Advance Financial says the payday company uses banks and borrows for operating needs. But it does not create “new money” and inflation when it extends a loan. Paydays, then, do not profit from the fraud upon the public as practiced by banks that debase the paper dollar.
Serving need caused by evil custom
Paydays also serve a need created by employers who do not pay wages and salaries at the end of the workday. A few pay weekly. Many pay semimonthly. Some hold workers’ wages a month.
The scriptures reveal the mind of God as to masters are to treat servants. In law, employment is a master-servant relationship. Employers are to hold to a policy of quick payment of wages. Greed is prohibited in the 10th commandment, which begins: “Thou shalt not covet.” For true equity and justice to reign, wage payments must be timely.
— “Do not withhold good from those to whom it is due, When it is in the power of your hand to do so. Do not say to your neighbor, “Go, and come back, And tomorrow I will give it,” When you have it with you.” Proverbs 3:27, 28
— “Wealth gained by dishonesty will be diminished, But he who gathers by labor will increase.” Proverbs 13:11
The scriptures favor justice among people, especially as between a superior and an inferior. Wages are to be paid daily.
— “You shall not oppress a hired servant who is poor and needy, whether one of your brethren or one of the aliens who is in your land within your gates. Each day you shall give him his wages, and not let the sun go down on it, for he is poor and has set his heart on it; lest he cry out against you to the Lord, and it be sin to you.” Deut. 24:14, 15
— “’You shall not cheat your neighbor, nor rob him. The wages of him who is hired shall not remain with you all night until morning.” Leviticus 19:13
One “who exploit[s] wage earners and widows and orphans” is likened to the sorcerer, adulterer, perjurer and one who turns away an alien (Malachi 3:5).
The law of God is clear that masters have a duty to Him to pay swiftly lest judgment come. Is it true that such a sophisticated people as Americans cannot allow a worker to receive a direct deposit at 5 p.m. minus the nibblings from statutory locusts? The software would not need be complex, and would account for and direct wage payments.
Mayor Andy Berke agrees with the two City Council members, blaming many of Chattanooga’s ills on payday lenders. But paydays don’t steal from the working man by corroding his buying power via inflation. And if their field is attended with blight, we can blame Bible-minded employers who carelessly disregard their godly duty to the poor.
—David Tulis hosts Nooganomics.com 1 to 3 p.m. weekdays on Hot News Talk Radio 1240 910 an 1190 AM, a show that covers local economy and free markets in Chattanooga and beyond.
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Once again you wrote a very thought provoking piece. You touched on the concept of time-value of money when you mention that the longer an employer holds your pay, the employee is effectively giving the employer an interest-free loan. I believe you are correct in showing that the Bible demands immediate payment for work.
Now to the issue at hand: Can anyone answer me how the government restricting the number of suppliers for something you wish to acquire can be good for you, the consumer? Of course it is not good for the consumer which in this case is the very poor that this City Council and mayor claim they are trying to protect. The question is why are they suddenly taking on this issue? It is certainly not based on a public outcry.
Do not be surprised if some heavy hitters in the payday loan industry are putting the pressure on the Council and the mayor for this action. What usually drives this is that a bunch of new people get into a particular business and as a result, prices fall because there is more competition. This benefits the consumer every time, does it not? The only solution for the big player is to run to a government that is predisposed to central economic planning, exert some influence, and then all of a sudden new regulations, price controls, licensing requirements, etc... (anything that will limit competition) is put forth in the name of protecting the poor but will actually do them more harm.
Just look at the taxi industry and Uber. Did Chattanooga need 22 regulations so you can get in someone's car?
In Bradley County, the Commission was to vote on adopting international building codes. Who is pushing it? The building industry itself. All in the name of protecting the consumer but in reality it is in the name of protecting themselves by restricting competition.
It is popular to come down on payday loan lenders; not so much on taxi drivers, house builders, tow truck operators, etc... I make no moral judgments on any of these industries. I just object to any industry using government to protect their market from competition. When government conspires with business this way, we all suffer from less choice and higher prices.