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States Wrongly Cracking Down on Car Title Loans
Several states are putting limits on the car title loan industry. This is where people take out short-term loans with high interest rates using their cars as collateral and no credit check. The lender gives them a few thousand dollars for a piece of paper which says they own the rights to the very car they watch drive off their parking lot with their money. While this is a completely voluntary transaction for both parties, some states seem to think they should step in and intervene in the marketplace. Wisconsin, for example, is making this type of lending completely illegal. Other states place heavy regulations on lenders and caps on amounts.
First of all, the states have no moral right to intervene in this way. Both parties voluntarily agree to the loan and should have every right to do business with each other. Secondly, most banks and credit unions will not deal in this type of lending, but the need for short-term cash will not magically go away. In many cases that is the short-term money these people need to keep their electricity on or to feed their kids. Since no legitimate business will be able to offer these services, loan sharks will. In the name of protecting these borrowers these laws will end up harming them. Are people really better off dealing with a loan shark? For every well-intentioned government intervention there are going to be unintended consequences, which are often worse than the problem the intervention was meant to alleviate.