So here’s a great article out of The Tennessean.  It profiles a start-up that has figured out a way to offer short-term, small dollar loans at rates that are below that of traditional payday lenders.

Why is this important? Two reasons.

First, the media isn’t demonizing payday loans.  It’s examining an alternative without judgment.  That’s real journalism.  Kudos to them.

Second, it’s the answer to legislation: competition.

Payday loan opponents spend all their time criticizing the pricing of payday loans without ever understanding the consumer or the economics behind the product.  To them, and to hay-making politicians, the product is bad and the solution is to ban the product.

Why not instead let the market sort things out?  As I’ve written before, if the product were as harmful as claimed, the pool of customers would have dried up a long time ago.  Instead, there are still some 12 million people using payday loans.  The market has spoken, and now it’s speaking again.

Why don’t payday loan opponents get together and offer a new product?  Why don’t they find a model, like Contigo Financial has, and put payday lenders out of business by undercutting them on fees?

The reason is there is some kind of fundamental way opponents think about the world that is different than entrepreneurs.   Opponents want to shut things down without regard to unintended consequences.  They just don’t seem to want to think about the problem in another, more creative way.   I think it’s because they are swept up in the emotion of the issue, which I also just wrote about.  They’d do well to set emotion aside and take the approach that Contigo is, and bravo to them, by the way.

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