Payday Lending: An Ethics Evaluation

There is a legitimate basis for the widespread negative perception of the payday lending sector. The issues that arise from payday lending go much further than the acts of any one particular lender. The unsavory reality behind payday loans is that the way they are run as a business is essentially unethical. For lenders to continue making money, it is imperative that borrowers remain in debt. Lenders lose their ability to make a profit when borrowers pay back their loans fast.

This research demonstrates that the way payday loans are structured now puts borrowers in a position where they are likely to incur losses. The concept of justice as fairness developed by John Rawls serves as the basis for this investigation and analysis. The practise of payday lending does not uphold the standard of justice as fairness because the practise disrespects the fundamental requirements of fair cooperation. Payday lending fails to uphold the standard of justice as fairness.

WHAT Exactly Are Payday Loans Called?

Payday loans are short-term, low-dollar loans that borrowers are expected to return with the money they get from their next paycheck. The amount you can borrow with one of these loans can often range anywhere from $50 to $1,000, with an average of $375. Payday loans typically come with extremely high yearly interest rates, sometimes reaching as high as 400%.

Payday loans, on the other hand, are not intended to be long-term financial obligations. Borrowers are expected to be able to quickly overcome temporary financial gaps with these influxes of cash, which are supposed to be rather quick. If the loans are paid back soon, the amount of interest that must be paid stays at a low level, which is approximately $15 for every $100 that was borrowed. The majority of payday loans have a term length of two weeks.

There is a lot of debate surrounding payday loans since a lot of people see them as debt traps. Borrowers who are unable to keep up with their payments are forced to take out further loans in order to repay the ones they already have, which starts a never-ending cycle of debt. Lenders are accused of utilising misleading information and exorbitant fees to take advantage of the desperation of borrowers, the majority of whom are already living in poverty, in order to earn a profit.

Payday lending, according to advocates for the industry, provides a service that is both beneficial and required for people who are in severe financial situations and for whom regular sources of credit are not available. The most vulnerable customers, according to proponents of payday lending, would be the ones to suffer in the event that they were denied access to this type of credit.

HOW DO PAYDAY LOANS WORK?

The process of getting a loan from a payday lender is straightforward. A loan can be requested from a payday lender in one of two ways: in person at the lender’s physical location or online. This loan requires the borrower to furnish the lender with three pieces of information: an identification document, evidence that they are employed, and access to their checking account. The majority of loan providers demand the borrower to either provide electronic access to their bank account or to write a check that is post-dated for the borrower’s next payday. At the end of the borrower’s pay period, the lender either deposits the borrower’s check or uses their checking account information to withdraw the total amount of the loan plus interest.

Lenders don’t ask any additional information from borrowers beyond a photo ID, proof of employment, and a payment method. They do not investigate the borrower’s credit history or otherwise investigate the borrower’s capacity to repay the loan in any other way. Payday loans are available to borrowers regardless of whether they have a good credit history or are struggling severely financially.

WHY SHOULD YOU APPLY FOR A PAYDAY LOAN?

The idea behind payday loans is that they are a quick and easy way to solve temporary financial problems. Someone’s funds can be quickly depleted if they are hit with an unexpected expenditure such as a car repair, medical bill, or traffic ticket. Borrowers of payday loans generally have problems with their cash flow, such as a lack of savings or a credit card, or a poor credit history, and as a result, they are left with few options in the event that a financial emergency arises. A person who is short on funds can deal with an unexpected need right away and then pay back the loan with the money they receive from their next paycheck, according to proponents of payday loans.

However, despite the fact that payday loans are presented as emergency measures, most people utilise them to pay for needs that are not an emergency. According to a study conducted by the Pew Charitable Trusts in 2012, it was shown that 69% of borrowers utilised their payday loans to pay for reoccurring costs such as food, rent and mortgage payments, credit card bills, and utility bills. Only 16% of people used loans to cover sudden and unexpected expenses.

Payday loans are a very popular way to obtain financial assistance, despite the debates that have arisen over the appropriateness of their utilization. Payday lenders assist close to one in six households across the United States. The high percentage of underbanked in the United States contributes, in part, to the predominance of payday loans, which is in part caused by the lack of savings that is common in American households. In 2015, 46 percent of adults said that they did not have sufficient resources to meet an unexpected bill of $400.

Under banking is the practice in which an individual obtains her financial services from institutions that are not part of the conventional banking system. Some examples of the underbanked include the use of payday loans. In 2015, 19.9% of American homes, or more than 50 million persons, did not have a bank account. They are driven into the payday lending sector because the widespread precariousness of household finances in the United States, along with a lack of access to regular banking services, pushes people into the market.

ETHICAL FRAMEWORK: JUSTICE AS FAIRNESS

Since fairness is of the utmost importance in the context of payday loans, the conception of justice as fairness as articulated by John Rawls is an excellent lens through which to examine the moral concerns raised by payday lending. Critics believe lenders breach fairness. As a result of the lack of other options available to them, borrowers are not bargaining on fair terms. Because of the predatory nature of some lending schemes, borrowers are not given a reasonable opportunity to repay their debts.

The industry’s defenses likewise revolve mostly around the concept of fairness. The high default rate that is inherent to payday lending, the low value of each loan, and the short length of each loan all contribute to the perception that the interest rates are excessively high. In point of fact, it would be unfair for harsher laws to deprive borrowers of payday lending, which is a resource that is used by millions of people in the United States.

According to the theory of John Rawls, human beings are capable of acting equitably toward one another because they are both rational and reasonable. People are able to recognise and methodically pursue their own self-interests, demonstrating that they are rational beings. And individuals are sensible when they recognize fairness and honor the reciprocal terms of collaboration, even if it means sacrificing their own interests in the process. A reasonable person is one who is willing to accept limitations placed on her behavior, provided that the same limitations are imposed on everyone else as well.

Therefore, while it may be appropriate for one person to take advantage of a more advantageous bargaining position in order to make a profit, that same person’s behavior would not be reasonable if she did not accept the same behavior if she were the one who was in the weaker position.

Lenders are acting fairly if they behave properly and treat borrowers in the way that they would want to be treated if they were in the borrower’s position. If, on the other hand, lenders make use of their logic to take advantage of borrowers, they are acting in an unreasonable, unfair, and unethical manner.

ETHICAL PROBLEMS WITH PAYDAY LENDING

The primary argument advanced by detractors of payday lending is that the practise exploits debtors for the sake of financial gain. The difficulty with this line of reasoning is that payday lending does not generate a lot of revenue. According to the findings of a number of research, payday lenders have a profit margin of less than 10%. There are more businesses operating as payday lenders in the United States than there are Starbucks, yet Starbucks has a higher profit margin. Lenders are not generating enormous profits off the backs of people who are struggling financially.

This does not mean that lenders do not take advantage of borrowers in any way. Borrowers who rely on payday loans are more susceptible to being taken advantage of. Payday loans are offered to a very specific type of consumer, specifically those who are in desperate need of cash but have no other credit choices available to them. A situation that is ripe for exploitation is created when there is a desperate need mixed with a lack of options.

The payday lending industry is often referred to as a “debt trap” by its detractors. When borrowers are in a desperate position, they are more likely to agree to loans with excessive interest rates and short repayment terms. They are forced to take out further loans in order to repay the initial debts when they inevitably are unable to repay the loans they took out. The practise of obtaining a new loan in order to repay an existing loan is referred to as “rollover,” and opponents assert that it is a key component of the business model utilised by payday lenders.

The practise of rollover is quite frequent in the payday lending sector, which is one of the primary reasons why many people consider payday lending to be a kind of predatory lending. Because repeat business is the primary source of a lender’s profit, the rollover rate is not subject to any attempts to lower it. Under this arrangement, however, borrowers are the ones who stand to suffer losses, and they often do.

If the borrower pays back the loan, the lender will receive her original deposit and the interest accrued on it. If the borrower chooses to roll over the debt, the interest continues to accrue, and the lender makes even more money. It’s just like being in Vegas: the players might win one or two hands, but the house will always come out on top. And the real money is made with the clients that come back multiple times.

Those who support the industry argue that interest rates should reflect the expenses of doing business for lenders. They claim, given the current atmosphere of economic insecurity, with so many people living paycheck to paycheck, individuals need speedy access to emergency financing. It’s possible that restricting access to payday loans could lead to an increase in bankruptcies or drive consumers to look for alternative lenders that aren’t regulated or legal. The quick growth of the industry as well as its enormous size point to the fact that there is a significant demand for its goods.

If it is the case that lenders take advantage of borrowers by luring them into an endless cycle of debt, then the practise of exploitation would appear to be an inherent component of the business model. At the moment, lenders do not make very large profits. If they are unable to generate a significant amount of money by exploiting people, it is likely that they are unable to make any money at all when they are not exploiting people.

Furthermore, a company that is unable to generate profits is certain to fail. However, putting an end to exploitation might put an end to the payday loan industry, because a business that can only profit from exploiting others has no place in our world. To have a better idea of whether or not the payday lending industry has the potential to operate in an ethical manner, we need start by investigating the most serious ethical problems that are associated with the current state of affairs. These include:

• Frequent rollover
• Advertising that is misleading
• A borrower’s ability to repay not being properly evaluated.
• Methods of collection that are abusive
• Short-term lending periods

NOTE:

• If nothing else is mentioned, we will operate under the assumption that people who take out payday loans do so in order to deal with unexpected costs. Payday loans are not intended to be used for extended periods of time, but rather for one-time financial emergencies.
• We are going to make the assumption that the goal of payday lending is to help borrowers who are in brief crisis situations make the transition from financial instability to financial stability. If payday lenders do not provide borrowers with a realistic prospect of regaining stable financial footing, then it is unethical for payday lenders to profit off of their customers’ financial catastrophes.
• Each state has its own regulations regarding payday loans. In the next paper, we shall talk about payday loans in a broad sense. In some states, certain immoral activities will be subject to legal regulation, whereas in others, this will not be the case.

Frequent Rollover

Payday loans are designed specifically for people who do not qualify for typical bank loans due to their poor credit. And they are reactions to abnormalities in the financial system that place an abnormal strain on the borrowers’ resources. Under these conditions, it is inevitable that some people would end up rolling over their payday loans. But rollover shouldn’t happen nearly as often as it does. These are frightening numbers: only 36 percent of new payday loans get repaid in full within the initial term. The following is a statement issued by the Consumer Financial Protection Bureau, which is the federal body that oversees the regulation of payday lending:

“More than four out of every five payday loans are refinanced within a month, typically at the same time as the original loan is due or not long after it has been paid back. And nearly one-quarter of all initial payday loans are refinanced nine times or more, resulting in the borrower paying back significantly more in costs than the amount of credit that was originally extended to them. It is clear that the structure of payday loans does not provide borrowers with a reasonable opportunity to repay their loans, as seen by the widespread failure of borrowers to return their obligations.

When borrowers are unable to repay their loans in a timely manner, it is to the advantage of lenders. Borrowers who choose to roll over their existing loans are required to pay additional rollover fees in addition to the interest that is accrued on their loans before they are eligible to receive a new loan for the same amount as the principal balance of the previous loan. Even without taking into account the rollover fees, it is possible for payday loans to quickly become very expensive. This is due to the extremely high-interest rates that are typically associated with payday loans, which can reach 400% or higher.

There are some practices that are morally acceptable even though they are harmful to the borrower. Rollover is not in and of itself a catastrophic event. Even if you take out a loan for $200 to fix your car, roll it over twice, and end up paying a little more than $300 total for the repair, it is still a much better option than losing your car, not being able to get to work, and losing your job.

Or you could skip a payment on your rent or your electricity and end up losing your home or your power. A rollover does not necessarily spell doom for the borrower; the loan might still have a positive net value even after many rollovers have been completed. The existence of an ethical dilemma results from the fact that the concept of payday lending is predicated on high rollover rates in order to generate profits. Therefore, lenders have an incentive to keep debtors in debt as long as possible.

The Federal Reserve Bank of Kansas City reported in a working research paper that “The profitability of payday lenders hinges on repeat borrowing.” Payday lending stores close whenever a state passes legislation that reduces the amount of rollovers that lenders are allowed to offer borrowers [26]. This is due to the fact that a large amount of lender revenue comes from repeat lending; in some cases, as much as 70 percent of their earnings.

When payday lenders need to keep high rollover rates in order to stay in business, the payday lenders’ interests become at odds with those of the people who borrow from them. The borrowers have the goal of fast paying off their loans and getting back to a secure financial position. Lenders want borrowers to continue carrying debt so they can continue to collect interest and rollover fees. Lender activities that place borrowers at a significant disadvantage when it comes to paying back their loans are the direct result of the competing interests of borrowers and lenders. The following are some examples of the worst possible practices:

Misleading Advertising

In the past, lenders have often neglected to provide consumers with crucial information regarding their loans. It is essential that all parties to a contract have a comprehensive awareness of the obligations that are placed on them by the agreement. It is of the utmost importance that borrowers, who are currently experiencing financial hardship, comprehend the conditions of the loans and the anticipated implications that the conditions will have on their current financial situations.

It is common knowledge that advertising for payday loans is unethical. Because the advertisements for payday loans were so obviously deceptive, Google and Facebook both decided to restrict them. Payday loan advertisements typically downplay the long-term effects of loans, the risk of rollover, and the extent to which fees are assessed. These advertisements are filled with phrases such as “quick cash” and “no credit check.”

The misuse of loans is a direct result of misleading advertising. Payday loans are designed to be short-term loans that are taken out in an emergency situation. Despite this, the typical borrower is in debt for five months out of the year, and 69 percent of borrowers use their loans to pay for reoccurring obligations.

The payday lending business recognizes that payday loans do not lend themselves well to long-term borrowing because of their nature. These loans have interest rates that are 400% or more, making them poor choices for long-term credit plans. Payday loans should not be used to cover ongoing costs, and lenders have a responsibility to make this clear to borrowers.

The concept of justice proposed by Rawls is one that aims to respect both the rationality and the reasonability of individuals. It is unreasonable for a lender to either fail to adequately educate borrowers or to intentionally mislead them. This behavior prevents borrowers from exercising their rationality and undermines the lender’s credibility.

Honoring the ideals of fairness is something that reasonable individuals do, even if it means acting against their own self-interest. They are aware that they must act in a manner that is consistent with how they would expect others to act. People who exploit others by taking advantage of their better bargaining position behave rationally, but not decently; these same people would not accept being exploited in this manner if it were done to them.

People who are reasonable conduct themselves in a manner that is consistent with the principles they recognize as being just and universal norms of cooperation. Nobody thinks that ignorance and exploitation are acceptable, and nobody would knowingly put themselves in a position where they may be duped.

The provision of correct information to borrowers regarding their loans is the most reasonable action that lenders may do. Borrowers who are well-informed and financially literate are in a better position to use their logical faculties to evaluate how various loans may impact their personal finances. Lenders are able to respect the borrowers’ capacity for rational thought in this manner. This sort of behavior is rational; everyone wants to maximize their own self-interest, and everyone wants others to respect the goals that they have set for themselves.

It is to be expected that not all borrowers will be able to think clearly enough to anticipate the implications that payday loans will have on their finances. Because of this, lenders, who are more knowledgeable about the typical outcomes of payday loans, have a responsibility to educate themselves about the borrowers’ financial situations and assist them throughout the process of obtaining a loan.

People make mistakes. This kind of assistance is not a gift; the purpose of payday lending is to assist borrowers in overcoming challenging financial circumstances. Unfortunately, the vast majority of lenders do not offer the help that they should. This brings us to the next problem, which is the inability to properly evaluate a borrower’s capacity to repay her loans.

Failure to Evaluate the Capacity of the Borrower to Pay

Because rollover is so widespread, it is irresponsible and unfair for a lender to not assess the borrower’s ability to repay a loan before making a loan to them. Before issuing a loan, lenders often do not thoroughly underwrite the borrower’s application or check the borrower’s ability to repay the loan. This is one of the primary reasons why rollovers are so common. Before approving a loan, creditors often require three items from potential borrowers: identification, evidence of work, and access to a bank account. There is no standard that applies across the sector that compels rigorous underwriting.

Lenders put borrowers in jeopardy when they fail to underwrite their loans, putting them in a precarious position because extended payday loans are so destructive to them (the interest can quickly exceed the principal within a few months). According to research conducted and published by the Pew Charitable Trusts in 2012, “on average, a borrower takes out eight loans of $375 each year and spends $520 on interest.”

The concept of justice proposed by Rawls is based on the idea that people should be allowed to pursue their goals within the context of an equitable system of cooperation. To this end, Rawls is of the opinion that society should make an effort to foster equality of opportunity by making adjustments to account for factors such as “how [citizens] are affected by disease and accident” over the course of their life.

It is said that payday loans can protect borrowers against unforeseen catastrophes such as illness and accidents by helping to smooth out cash flow challenges that arise during times of financial emergency. In certain situations, payday loans can accomplish this goal. However, lending at high interest rates can just as readily cause harm as it can provide good. When people’s debt does not go away and they start prioritizing the payments on their payday loans over day-to-day requirements, the solution to the problem becomes the problem itself.

Payday lenders have a need to investigate how their loans would influence consumers because these lenders typically market their services as an emergency response option. Because they are aware of the frequency and cost of rollover, lenders cannot put their customers in jeopardy by exposing them to the possibility of default if they do not have a reasonable expectation that borrowers would be able to repay their loans. Caveat emptor is an example of negligent behavior. It is impossible for lenders to make the claim that they provide relief when they take no action to ensure that their product, which has the potential to cause significant damage, is used in a responsible manner.

Unfair and Abusive Collection Methods

Collection of delinquent payments is a component of all kinds of loans. However, payday lenders frequently use collection tactics that are immoral and put borrowers in a bad position. These kind of collection techniques go counter to the fundamental goal of payday lending, which is to assist borrowers in finding short-term solutions to their financial issues.

The following are some of the most typical unethical collection strategies:

• Obtaining priority payment from the borrower’s income before paying any other liabilities.
• Mandating lump-sum repayment

First-Pass

The repayment of payday loans takes precedence over the payment of any other bills. When an individual applies for and is approved for a payday loan, the borrower is required to provide the lender with a post-dated check (or access privileges to a checking account). The check written by the borrower is cashed by the lender on the borrower’s next payday (or electronically withdraws the funds).

Lenders ensure that they are paid first by deducting the money owed to them straight from the account of the borrower on the borrower’s next payday. Payday loan debt comes first, even before the borrower’s other financial obligations, such as their rent, electricity, and credit card bills. According to the findings of a study conducted in 2012, households with an annual income of less than $50,000 were more likely to use food stamps and were 10% less likely to pay child support if they had access to payday loans.

Payday lenders once again make their product resemble the problem that it is supposed to cure by making repayment of payday loans a higher priority than any and all other commitments, including basic requirements. The prerogative of the lender to make the initial loan runs the risk of causing the kinds of urgent financial problems that payday loans are designed to ease. This method of collecting payment may prohibit borrowers from paying other bills or affording necessities, may result in the borrower’s account is overdrawn (which may result in the borrower being charged overdraft fees), and may even risk the borrower’s bank account being closed.

The notion that payday lending is a kind of crisis management is called into question when borrowers are required to give lenders first dibs on their paychecks. It is patently irrational to anticipate that borrowers will prioritize payday loans over fundamental necessities such as obtaining food and paying child support. Payday loans should not have the authority to quickly and forcibly cut themselves out of someone’s income while other financial obligations, such as medical expenses, utility payments, and child support payments, do not have that power. Giving lenders the right of first refusal violates ethical standards when it comes to prioritizing duties.

Lump-sum Repayment

The borrower is typically required to repay the loan in a single sum, also known as a lump sum or balloon payment. This is one of the distinguishing characteristics of payday loans. The requirement that such short-term loans be repaid in one large sum can be a burden for borrowers, particularly those borrowers whose financial situation is already precarious.

Consider the situation of the prototypical borrower of a payday loan: this individual has two weeks to pay for an unexpected financial occurrence while still fulfilling their regular commitments and repaying a payday loan.

If payday loans are, in fact, tools for crisis management, then repaying the loan in one large sum works against the purpose of the loan. According to the rollover rate, financial crises typically only last for a period of two weeks at the most. The path to secure financial footing is rarely as short as one paycheck.

One of the burdensome aspects of first-pass is the requirement for a lump-sum payback. It is impossible for a single paycheck to cover the repayment of a full debt while also being able to satisfy one’s usual duties. Lenders are aware of this fact; it is hard for many borrowers to make a single payment.

Some jurisdictions have already passed legislation that mandates lenders provide borrowers with the opportunity to convert their loans into payment plans, and other states have previously passed rules that require lenders to provide payment plans as alternatives to loans made in one lump sum. On the other hand, many lenders have made such programs more expensive in the near term, which makes the alternative less attractive to consumers.

Financial stability is a distant objective for many people who are now experiencing difficult times. Most of the time, the only way forward is to slowly make progress toward security. Payday loans ought to take into account the gradual nature of the process and should not penalize borrowers for taking their time with the application process.

Lending Periods That Are Short-Term

It is only natural that shifting away from a model of payday lending that involves a flat payment will lengthen the lifetime of loans, so enabling borrowers to return their loans in installments over the course of time. Because of this, the payday loan would no longer be considered a short-term loan.

But in reality, these loans are not at all intended to be paid back within a short period of time. Payday loans are only short-term in the name because the average borrower stays in debt for five months, and slightly more than a third of new loans are paid off in a single term. When these statistics are taken into account, the average borrower spends five months in debt.

The astounding rate of rollover demonstrates that the vast majority of urgent monetary problems cannot be solved in fourteen days. In light of this fact, the payday lending sector should adjust its practices to account for the fact that achieving financial security does not happen overnight. Borrowers are set up for failure when they take out short-term loans.

CAN PAYDAY LENDING BE ETHICAL?

Because of the processes described above, rollover is the most likely conclusion for a significant portion of payday loans. Sadly, this outcome was not the product of a random event. Rollover fees account up a significant component of payday lenders’ earnings, despite the fact that these companies do not have particularly high-profit margins. Lenders require that a sizeable portion of their customer base be unable to fulfil their financial obligations in order to continue operating profitably. This goal cannot be pursued ethically for the following three reasons:

• It provides an incentive to violate the terms of the loan agreement.

When lenders require rollover to generate profits, they require borrowers to default on their loans in order to achieve this goal. This indicates that the lenders require the borrowers to violate the terms of the loan agreement. It is unethical to create a contract with the intention of allowing it to be broken. Lenders are not acting reasonably when they issue contracts to borrowers even though they are aware that the borrowers will be unable to honor those contracts. Lenders would not be willing to make contracts even if they knew they could not honor them. It is essential for there to be a reasonable expectation that both parties would fulfill their duties in order for there to be a valid basis for a contract.

• Antagonism between the lender and the borrower is caused by the dependency of the lender on rollover.

The process of lending becomes corrupted when lenders demand high rollover rates in order to make a profit. Lenders and borrowers are supposed to be working toward the same goal: lenders provide financial resources, and borrowers put those resources to use and then pay those resources back with interest. Both parties benefit. This relationship is one of mutual benefit and symbiosis.

This relationship, however, comes to an end when the lenders require the borrowers to roll over their loans. When there is not enough money to make a profit for both the lenders and the borrowers, they stop working with one another and start competing with one another. The symbiotic connection between lenders and borrowers is transformed into one that is parasitic and even predatory by the lenders’ actions.

• A disproportionate amount of stress is placed on borrowers with the fewest advantages by the system.

People who are unable to repay their loans have the option of rolling them over. It results in the accrual of new fees and maintains the borrower’s obligation to pay interest. When lenders make a profit from rollover, they are making a profit off of the customers who have the fewest advantages.

Rawls’ theory of justice as fairness proposes that in order for a society to function justly, it must adhere to two principles of justice:

• Everyone is entitled to the same fundamental liberties (e.g. freedom of speech, association)
• Inequalities in social and economic status must: Have their roots in a principled commitment to equal opportunity and
• Provide the greatest possible benefit to the people of society who are at the greatest disadvantage.

Rollovers that generate profits violate the concept of equality since they take a disproportionate amount of money from borrowers with the fewest advantages, without providing those borrowers with any additional or unique advantages. A system that is structured to take the most from those who have the least violates fundamental moral intuitions as well as more developed conceptions of justice.

Even if the two principles of justice outlined by Rawls are not intended to be applied to specific institutions but rather to the fundamental framework of society, it is undeniable that the well-being of those who are the least fortunate should be given a higher priority. If a society wants to achieve equality of opportunity, it must ensure adequate protection for the citizens who are the most vulnerable. This protection must include protection against unforeseeable disasters as well as protection from exploitation in the event that an unforeseeable disaster occurs.

CONCLUSION

The payday loan sector has come under fire from politicians, commentators, and leaders from all walks of life, including religious and secular authorities, who view it as an exploitative debt trap. The negative reputation that has been attached to the sector is not the result of the actions of a few rotten apples, but rather of the intrinsic corruption that is present in its fundamental structure. This ethical problem could be solved by bringing the sector up to current ethical standards.

When a household’s funds might be depleted by a single unanticipated expense, there needs to be a way for them to get some relief. Regrettably, payday lending, despite the fact that it claims to be able to provide such assistance, does not have any interest in fostering monetary security. The financial situation of borrowers must remain stable for the business model to be successful.

The present paradigm for payday lending is a flawed combination of business practises that result in high operational expenses and low profits. It is possible that the incorporation of payday lending into large institutions might transform the payday loan industry into a business that adheres to ethical standards. The existing infrastructure and technology of entities such as large national banks or government institutions could be used in order to facilitate the provision of small-dollar loans.

Payday lending should be moved to national banks or other government organisations, such as the post office, according to policy suggestions that are already on the table. The technology that enables large banks to underwrite loans in an efficient and cost-effective manner. The government has an interest in the financial stability of its residents so that those citizens can contribute to the economy and do not have to rely on welfare or other forms of assistance of a similar nature. Payday loans might become a respectable option for achieving financial stability if they were moved from their current location to fall under the supervision of a new actor.

Even if payday loans were eliminated, the issues that drive people to seek them out would still exist. We have a responsibility to make sure that if we deny people access to this choice, they have access to another one that provides them with an equal opportunity to achieve financial security.