I agree with much of what Arianna Huffington writes today in the Huffington Post about the recently passed financial reform bill. She correctly points out that the bill does nothing to end "too big to fail" banks and, perhaps most disturbing, keeps taxpayers on the hook for future bailouts. But she goes on to criticize republicans for killing North Carolina Senator Kay Hagan's pay day lending amendment, saying: 

Or how about payday lending — the largely unregulated advances on a paycheck that can carry rates in the triple digits? In Missouri, for example, rates can top 600 percent. Yes, you read that right. Not exactly a recipe for "financial stability." North Carolina's Kay Hagan offered an amendment that would have clamped down on the $40 billion industry. It was killed without a vote because of Republican objections. 

Unfortunately, yet not surprisingly, Huffington fails to spell out those Republican objections, instead leaving the reader with the impression that Republicans just don't care about poor people.

But the truth is, as both Michelle Bernard and Carrie Lukas explained in separate opeds last month, while Senator Hagan may have wanted to protect low income Americans from predatory lenders, she would have ultimately hurt those Americans by limiting their access to credit.  Carrie writes: 

Who would bear the brunt of these new restrictions on small loans?  Low-income Americans who are most likely to seek these types of loans and have less access to other forms of credit.   Proponents of restricting or even eliminating the availability of these types of short-term loans focus criticism on the loan's high interest rates.  However there's a reason that these interest rates are high:  given the short-time horizon and the high risk of non-payment, high interest rates are the only way these loans will be profitable for lenders.  Absent high interest rates, these lenders wouldn't offer credit to high-risk borrowers.   

And if high interest rates are the primary concern, then policymakers are missing their target by excluding other high interest, short-term loans. Overdraft protection, for example, acts as a short-term loan: when the account holder withdraws too much, the bank covers the shortfall for a price.  Typically, banks charge an immediate penalty for activating overdraft protection and then charge additional interest on the loan.  So someone who takes out a short-term loan of $100 through overdraft protection may end up paying a $50 fine immediately, and then interest and sometimes additional penalties until that loan is paid off.  The implicit interest rates of these transactions can make payday loans a far more sensible option. 

There were also considerable privacy concerns with the Hagan Amendment.  The amendment would have set a cap of six loans per year for individuals.  In order to enforce this cap, a federal database would have been required to track each individual's per-year use of these loans (setting up and managing this database would have been an enormous expense to the industry–an expense that would be passed on to the consumer in the form of fees).   

This type of database would be a very tempting target for online criminals. It would contain valuable information such as social security numbers and detailed financial histories, and its contents would very possibly be vulnerable to attack. The federal government has already shown itself to be unable to maintain adequate privacy controls, leading to many high-profile data breaches. For example, in 2006 a federal VA employee put 26 million medical records on a laptop which was later stolen.