Take a look at this article from the NY Times on debt collection.

Step inside a payday loan store.  Take out a loan.  You’ll fill out a one or two page application.  You’ll be provided with all the legal disclosures on a single page.  In some states, there may be one or two other pages of disclosures.  Only Texas has a fairly large amount of disclosures as it operates under a slightly different model than other states.

Open up the “terms and conditions” pamphlet of a credit card.  You’ll need to pull out your magnifying glass to see all the fine print. If printed in the font size you see on a payday loan form, the treatise would run about 10 pages.

Sit down to apply for a mortgage, and then get a look at the mortgage documentation you’ll need to sign (if you can even get a mortgage).  The stack of papers for my mortgage ran an inch high.

Admittedly, there’s no scientific study that shows the simplicity of the payday loan product is why consumers choose it over other forms of credit.   However, the even-handedness and transparency with which the payday loan industry treats its customers versus the aggressive collection practices of the credit card industry is worth noting.  If someone defaults on a payday loan, it’s my understanding that the lender will often try to resolve the matter one-on-one.  After all, this kind of loan is a face-to-face loan.  If that fails, they will sell the account to a debt collector.  Worse case scenario – the consumer is sued in municipal court and has wages garnished.   It’s perfectly reasonable to collect on a legal debt obligation in this manner.

But if a consumer defaults on a credit card, not only is their credit destroyed, they potentially face all the difficulties outlined in the NY Times article.  And if one defaults on a mortgage, kiss your entire credit history and roof over your head goodbye.

Yet payday loans are the option that opponents seek to restrict.

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