Letter: Let market set interest on loans

Thursday, Dec. 23, 2004 | 4:07 a.m.

WEEKEND EDITION

December 24 - 26, 2004

I read the Dec. 6 letter from Frank Perna headlined, "Feds do nothing to loan sharks." It is a shame that some people have to pay outrageously high interest rates, such as those charged by payday loan companies. I disagree, however, with Mr. Perna's conclusion that the government, especially the federal government, would solve the problem by enforcing anti-usury laws.

Mr. Perna claims that he once worked for loan companies that charged interest rates nowhere near "what is being charged at these unscrupulous operations." I'll bet Mr. Perna's customers were mostly people of good credit, and those with poor credit were simply denied loans rather than being charged unscrupulous rates. Did Mr. Perna ever ask where rejected loan applicants can borrow money? If not for payroll loan companies, they would probably have to deal with true loan sharks, who break limbs when loans are not paid back.

One does not help the unfortunate by taking away what few options they have. There are some 60 payroll loan companies in the Las Vegas Valley. This number portends a competitive market, which implies that the going rate, no matter how unscrupulous, is what is necessary to cover expenses. Payday loan companies charge high rates to all borrowers, so that the few who repay make up for the many who do not.

Payday loan companies are providing a service, despite their high rates. Please do not take this service away unless you are willing to offer a substitute.

THOMAS CARROLL

Editor's note: Thomas Carroll is an economics professor at UNLV.