In the last few years, there have been a number of news reports about the rapid

Question

In the last few years, there have been a number of news reports about the rapid expansion of "pay-day" lenders and the high rates and fees they charge. The point has been made that such businesses target low income, financially struggling individuals and "catch" them in a cycle of debt. Proponents of the industry claim that they serve a valuable place in today's economic environment., A more recent debate has emerged about online pay-day loan companies and what risks to which they may expose customers.

Read article then consider the following questions:
http://www.today.com/money/abusive-practices-widespread-online-payday-lenders-study-2D80191084

1. Do you think that pay-day loan companies should be forbidden by law? Why or why not?
2. Do you think that pay -day loan companies should be more heavily regulated? If your answer is "no", then explain why. If your answer is "yes" then explain why you feel the need for such regulation is present.
3. What types of added regulations do you think are necessary, if any?

Explanation / Answer

1. Do you think that pay-day loan companies should be forbidden by law? Why or why not?

Ans: No, each player in the market serves a need. Since there is a need in the market , they are existing. If we forbid them , the need will remain unfulfilled.

2. Do you think that pay -day loan companies should be more heavily regulated? If your answer is "no", then explain why. If your answer is "yes" then explain why you feel the need for such regulation is present.

Ans : While they are fulfilling a need , the market is not competitive and hence the players are not price takers and are rather price dictators. This leaves a lot of opportunity for them to exploit a needy customer by hefty interest and other charges. Therefore a regulator is necessary to monitor their activity and surely after a good period of time they will operate in a competitive market like the credit card market players.

3. What types of added regulations do you think are necessary, if any?

Ans:

1.The regulator should monitor the interest and other charges that the players are taking.

2.Registration and cancellation of license.

3.Collection of feedback from customers in regular intervals.

4.Facilitating new players to enter into the market.

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