Here is a brilliant analysis, excerpted from Thomas Sowell’s “Intellectuals and Society” (p. 46 or thereabouts) concerning the laws against supposedly “predatory”, “exploitative”, etc. payday loans:
The underlying costs of providing financial services to people in low-income neighborhoods are likewise ignored by much, if not most, of the intelligentsia. Instead, the high rates of interest charged government intervention to put an end to “exploitative” and “unconscionable” interest rates.
Here verbal virtuosity is often used by stating interest rates in annual percentage terms, when in fact loans made in low-income neighborhoods are often made for a matter of weeks, or even days, to meet some exigency of the moment.
The sums of money lent are usually a few hundred dollars, lent for a few weeks, with interest charges of about $15 per $100 lent. That works out to annual interest rates in the hundreds—the kind of statistics that produce sensations in the media and in politics.
The costs behind such charges are seldom, if ever, investigated by the intelligentsia, by so-called “consumer advocates” or by others in the business of creating sensations and denouncing businesses that they know little or nothing about. The economic consequences of government intervention to limit the annual interest rate can be seen in a number of states where such limits have been imposed.
After Oregon imposed a limit of 36 percent annual interest, three-quarters of its “payday loan” businesses closed down.
Nor is it hard to see why. At a 36 percent limit on the annual interest rate, the $15 in interest charged for every $100 lent would be reduced to less than $1.50 for a loan payable in two weeks—an amount not likely to cover even the cost of processing the loan, much less the risks of making the loan.
Any amount of Ribbis (interest) is forbidden among Jews, and not because it is unfair.