When Interest Rate Ceilings Lead to Credit Rationing

From the Deseret Morning News:

Utah payday lenders began refusing Monday to make loans to members of the military rather than give them much lower rates mandated by a new federal law.

That new law, which took effect Monday, caps the annual interest on payday, car title or tax refund anticipation loans at 36 percent annually for members of the military and their families....

"At 36 percent annual percent rate, the total fees we could charge are $1.38 per $100 for a two-week loan. That is less than 10 cents a day," Walker said.

"Payroll advance lenders could not even meet employee payroll at that rate, let alone cover other fixed expenses and make a profit," he said.

[...]

"The protection the regulation offers is not a wall preventing a service member from getting assistance, rather it is more like a flashing sign pointing out danger and directing the borrower to a safer way of satisfying immediate financial need," said Leslye A. Arsht, deputy undersecretary of defense for military community and family policy.

He said financial help for members of the military is available through a member's chain of command, legal assistance office or military aid society.

In other words, this is another case of unintended consequences resulting from intervening in market forces. (Read the full article here.)