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Business Ethics Journal Review

Volume 1, Issue 4, 2013

Matt Zwolinski
Pages 22-27

Are Usurious? Another New Argument For the Prohibition of High Interest Loans?

Robert Mayer argues that certain kinds of high-interest payday loans should be legally prohibited. His reasoning is that such lending practices compel more solvent borrowers to cross-subsidize less solvent ones, and thus involve a kind of negative externality. But even if such crosssubsidization exists, I argue, this does not necessarily provide a ground for legal prohibition. Such behavior might be a necessary component of a competitive market that provides opportunities for mutually beneficial transactions to willing customers. And the alternative of a governmentmandated interest rate faces severe problems of its own.

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