Fact Versus Fiction About Bill S. 500
Politians who support bill S. 500 have a lot to say about the supposed
"benefits" of this bill, but the negative consequences have been left out of the
discussion. Here's the reality behind bill S. 500:
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Fiction
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Fact
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Bill S. 500 will help keep money in the pockets of the disadvantaged.
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Pawnshops are the only places poor/disadvantaged people can turn for a loan.
Banks won't lend to people with bad credit and no assets, and credit card issuers won't
extend them credit. A pawnshop is the ONLY business that will loan money to
the disadvantaged.
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The interest rates charged by pawnshops are "unreasonable" and predatory.
Any honest business should be able to operate successfully with a 36% interest cap.
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It's impossible for a pawnshop to make a profit with a 36% interest rate cap.
With this cap, pawnshops can charge a maximum of $0.10/day
for every $100 loaned, and the average pawnshop loan amount is less than $100.
Assuming someone borrows $100 and repays the loan 20 days later, a pawnshop
could only charge $2.00 in interest and fees for this loan. $2.00 isn't enough to cover
employee wages for the time spent writing the loan, not to mention all the other costs
associated with running a pawnshop.
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Disadvantaged Americans will be able to turn to banks to get the cash they need.
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It's difficult to get a loan from a bank even if you have good credit and plenty
of assets. People with no credit and no assets definitely can't get a loan from
a bank. If the government tries to change this by mandating that banks loan small
amounts to high-risk consumers under the 36% rate cap, banks will also lose money
on these loans. It just isn't possible to make small, short-terms loans with a
36% rate cap and be profitable.
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"By limiting the total cost of consumer credit to 36 percent,
Congress will keep billions of dollars in the hands of low and moderate-income
consumers, helping to stimulate the economy without costing taxpayers a penny."
(quote from Consumers Union press release)
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By limiting the total cost of consumer credit to 36%, Congress
will drive the only companies willing to loan to low and moderate-income
consumers out of business. As a result, Congress will eliminate one source of tax revenue
(pawnshops) and drive up crime rates, thus costing tax payers money while
lowering their quality of life.
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