Payday loans. Just hearing the phrase probably conjures up images of sky-high interest rates and desperate borrowers caught in a cycle of debt. But what if there’s more to the story? What if payday lending, often vilified as predatory, actually plays an essential role in the economy? Before you grab your pitchfork, let’s take a step back and examine this through the lens of economist Thomas Sowell.
In Basic Economics, Sowell reminds us that everything in economics is about tradeoffs. Payday lending is no different. Yes, these loans come with high interest rates, but they exist because traditional banks won’t touch high-risk borrowers. Without payday loans, many people would be left with even worse options—bounced checks, utility shutoffs, or unregulated, illegal loans that make payday lending look like a sweetheart deal.
Simple: risk. Banks don’t extend credit to people with poor credit histories because it’s not profitable for them. Payday lenders, on the other hand, are willing to take the gamble. High rates aren’t about gouging customers—they’re about covering losses from the large percentage of borrowers who default.
Some argue that payday lenders should be forced to lower their rates. But history shows us that price ceilings often hurt the very people they’re designed to help. If lenders can’t charge enough to cover their costs, they shut down—eliminating a crucial financial lifeline. The demand for emergency funds doesn’t disappear just because regulations change; it just forces borrowers into worse situations.
Nobody wants to take out a payday loan. But when the choice is between borrowing $300 or getting evicted, suddenly that 15% fee doesn’t seem so outrageous. Payday loans can prevent bigger financial disasters—like losing a job because you can’t afford car repairs. Critics say borrowers are being exploited, but is it really exploitation if they’re actively choosing the least-bad option available?
Instead of calling for blanket bans, the real conversation should be about responsible lending solutions that maintain access to credit while minimizing abuse. Financial literacy, better loan alternatives, and transparency in lending terms can do far more good than simply removing an option that people rely on in tough times.
Like most things in economics, payday lending isn’t black and white—it’s about tradeoffs. And if we want to create a financially stable society, we need to understand why people turn to payday loans and what happens when those options disappear.
What do you think? Is payday lending a necessary evil or an unfair system? Let’s have the conversation.
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Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.