Limiting Local Banking

When we study the banking system in Macroeconomics, we tend to ignore certain portions of the industry. These tend to be the places that provide liquidity for people on a very short term basis. Pawn shops have been around for hundreds of years. More recently, pay day loan places have sprung up to satisfy that need.

Now some state legislators want to outlaw the industry since they haven't been able to regulate it to their satisfaction.

The ballooning payday lending industry in Arizona could collapse if a handful of lawmakers can convince voters that short-term, high-interest loans push people into debt they can't climb out of.

Rep. Marian McClure, a Tucson Republican, announced Monday that she is launching an initiative campaign and wants voters in November 2008 to outlaw the businesses.

But erasing the industry altogether eliminates options for consumers who need money right away, said Lee Miller, who represents the payday lending industry. With more than 700 stores in Arizona, consumers have shown there is a market for the cash advances.

It is interesting to note that the oldest continuously operating financial institution in the Americas is a pawn shop in Mexico City.