But that is what the State of Ohio is considering. Governor Ted Strickland has teamed up with a good, bipartisan portion of his State Assembly to craft a bill that will cap the interest payday lenders can earn on loans. As usual, government’s heavy hand will be played and, again as usual, it will be too much. Even more usual, the market already has solutions for this problem.

Background: I currently work in the financial services industry, both as a banker and a licensed investment broker. Furthermore, I have worked for one of the giant banks as well as for a local credit union. And for the record, I hold a strong disliking for payday lenders. Many of my clients, past and present, have found themselves caught in a seemingly endless cycle.

Anyway, here is how it works. A consumer, short on cash, visits a payday lender, writes them a check for a particular amount plus interest, and post-dates the check for his or her next payday. In turn, the payday lender issues cash, which is collected by cashing the borrower’s check on or after payday.

The problem develops when borrowers don’t curb spending to the point that they must return to payday lenders on a regular basis. Consequently, borrowers end up paying ludicrous interest and, effectively, wasting money. One client comes to mind: an elderly lady who loaned money all of the time. She often resorted to payday lenders, which always caused her account to be overdrawn.

While payday lenders do lend to these consumers, and at high rates, they typically offer counseling to break their customers of the vicious cycle. It is not in the payday lenders’ best interests to have such a low reputation, so the market fosters the counseling aspect. One co-worker—a member of management—once managed a payday lender branch and he told several stories about counseling customers and offering them alternative products that promoted savings.

Likewise, payday lenders are simply responding to a market opportunity (hence the loan shark label). In many cases, payday borrowers have poor financial habits to begin with; thus, their respective predicaments are their own doing. The doldrums that the vicious cycle can cause serve as a market function to deter certain folks from their poor bookkeeping and spending habits.

Now to regulation of profits: The regulation of profits—that is, limiting the interest a payday lender may charge—will eliminate or severely reduce those profits. Two consequences will result: more responsible borrowers will have one less option for periodic help and lenders will become nearly insolvent to the point of cutting jobs and even closing shop for good (Perhaps this should occur per karma, but it should occur on a voluntary, market basis).

The latter is occurring in North Carolina, where hefty regulations have already caused job losses and store closures. In a stalling economy, measures to protect people from themselves will only do more harm, as unemployment rolls will rise and competition for existing jobs will increase.

But alas, there is a market alternative available to many payday borrowers. Credit unions typically offer a revolving loan similar to a payday loan with some key differences. First, the interest rates are lower, making it less expensive for borrowers to borrow. Second, there is the credit union’s service ethos, which will always encourage savings and free counseling programs. Furthermore, most credit unions offer “second chance” accounts with restrictions and mandatory counseling for consumers who have had troubles in the past.

Thus, let the market solve the problem. Making it easier for financial basket cases to borrow will only encourage more borrowing. What they need is incentive to save and change their ways, and, unfortunately, they often have to hit the bottom before bouncing back up. Ohio’s “solution” is no solution at all: it will encourage the continuation of the vicious cycle and cost jobs at the same time. But at least the government wanted to help.

Nowhere was there a lawn to speak of, at least compared to the perfect green patches in their former suburban neighborhood (that is, aside from the dry summer of 1988 when I literally killed the grass by playing far too much baseball). In fact, thigh-high grass and weeds were everywhere.

At the front of the lot was a dilapidated building that served as the former owner’s home. He was, I was told, a wildly intelligent man; organized in a military way within but in complete disarray without. Several other flimsy structures stood on the property as well. When these huts were demolished, many rats lost their homes.

As one worked one’s way back, more tall grass and weeds, along with their guests (mosquitoes, snakes, rabbits, etc.), hindered any advance. To the right was an old, tin roof barn. Beyond that was a creek and a tree line, leading to the back 2/3 of the property, which was covered in wild foliage.

In other words, the property was the County Eyesore.

Yet, my Grandparents slowly cleaned up the mess, enlisting, of course, my help during the summers. They also allowed the previous owner to live in his house for sometime after the closing.

Within a few short years, many of the old buildings were gone. One was refurbished into a garage, another into a small house, and a new barn was built. Persistent mowing, first with a bush hog, eventually created a vast green lawn. The County Eyesore had been transformed into Green Acres. Naturally, I visited often, and I continued to spend my summers with my Grandparents.

And during those hot summer days, they would often enlist my help with some task, typically simple duties I couldn’t botch: holding a board in place, raking leaves, etc. One bright day I stood at the mouth of the property with my Grandpa. I believe he was displaying a piece of farming equipment or the like with a For Sale sign.

I don’t recall the conversation, but I do remember his profundity for the day. The chat concerned money somehow, and I must have asked how folks got more of it. “I can always get money,” he said. Grandpa continued, saying that there was always something he could do to “earn” a little more cash.