Tuesday, May 24, 2016

Yet More Evidence Against State Usury Laws

Ever wonder why Arkansas was an economic basket case for so long? If you have ever driven through it, it is not all Ozark Mountains. (And mountains can be very good for an economy as South Dakota showed.) It is, basically, just part of the thriving Sun Belt.

Well, it turns out that after World War II it was controlled by loan sharks who imposed a binding usury cap on institutional lenders. Without an effective financial system, business stagnated and the state economy suffered. For details, see James M. Ackerman, “Interest Rates and the Law: A History of Usury,” Arizona State Law Journal (1981): 103-5.

An attempt by Good Will Industries and Prospera Credit Union to reduce the cost of payday loans got it down to $9.90 per $100 borrowed for 2 weeks. "Its experiment offers clear proof that two-week or one-month loans could never be viable if the usury limit were reduced to 36%." -- Robert Mayer, Quick Cash: The Story of the Loan Shark (DeKalb: Northern Illinois University Press, 2010), 225.

No comments: