The loonie gained 0.67 of a cent to 102.53 cents US although the U.S. dollar remained well-supported by signs the Federal Reserve may also raise interest rates sooner than anticipated.

The loonie’s rise came even as commodity prices backed off. Oil prices fell 69 cents to US$104.71 a barrel on the New York Mercantile Exchange. The April gold contract fell $3.40 to US$1,422.80 an ounce on the Nymex, while the May copper contract lost seven cents to $4.35 a pound.

Over the weekend, Bank of Canada governor Mark Carney told a meeting of Western Hemisphere finance ministers that sustained growth in emerging economies means high commodity prices are expected to stick around for a long time.

“Everything else being equal, higher commodity prices usually necessitate higher policy rates,” he said.

Bob Tebbutt, vice-president of Peregrine Financial Group Canada Inc., noted that it is odd that the loonie is much stronger despite a rising U.S. dollar and weaker commodity prices.

“Possibly strong because of the governor of the Bank of Canada stating that the commodity price boom will continue for an extended period and is urging his counterparts in other countries to move quickly on raising interest rates to counter the rise in commodity prices,” he said.

“This is being thought as an indication that he is ready to raise rates in Canada again.”

Meanwhile, a federal election was called for May 2. Traders don’t expect the federal election to have an effect on the market or the loonie. For one thing, polls show the Conservatives have a very good chance of forming the next government.

The next scheduled announcement on interest rates from the Bank of Canada is April 12 and the central bank isn’t expected to move on raising the rate from the current one per cent. Another announcement is schedule for May 31, after the election.

Meanwhile, the Canadian dollar could also find lift on Thursday when Statistics Canada releases gross domestic product figures for January. Economists expect the economy grew by 0.5 per cent, the same as the previous month. Such a move would be the fourth straight month of accelerating activity.

On Tuesday, Ontario Finance Minister Dwight Duncan will deliver that province’s budget.

The Canadian dollar edged up 0.3 per cent last week despite a slight, late-week dip.

By Sunny Freeman, The Canadian Press

The S&P/TSX composite index lost 32 points to 14,007.4. The TSX Venture Exchange fell 18.99 to 2,295.12.

The Canadian dollar was up 0.68 of a cent to 102.54 cents US after Canada’s central banker sounded a warning about inflation over the weekend, suggesting interest rates may not be on hold much past a spring federal election.

Bank of Canada Governor Mark Carney said Saturday that sustained growth from emerging economies means high commodity prices are expected to stick around for a long time.

“Everything else being equal, higher commodity prices usually necessitate higher policy rates,” he told a meeting of Western Hemisphere finance ministers.

The loonie rose even as falling commodity prices took a toll on the Toronto Stock Exchange.

Oil prices backed off slightly, down 70 cents to US$104.70 a barrel on the New York Mercantile Exchange, as the market focuses on Libya’s restarting production. Its rebel forces have indicated that they are ready to send the first shipment next week.

On the TSX, the energy index fell 0.2 per cent with shares in Suncor (TSX:SU) down 37 cents to C$43.75.

The April gold contract fell $7.50 to US$1,418.70. On the TSX, gold stocks sank 1.2 per cent with shares in Kinross Gold Corp. (TSX:K) down 1.7 per cent or 16 cents to C$15.50.

The May copper contract lost six cents to $4.36 as shutdowns at Japan’s auto and other plants cuts demand for the metal used in manufacturing. Mining stocks on the TSX lost 1.2 per cent with shares in Teck Resources (TSX:TCK.B) down 53 cents to C$52.03.

Japan’s nuclear incident will have a lasting impact on commodity markets, said Scotiabank (TSX:BNS) commodity market specialist Patricia Mohr.

“While the tragic March 11 earthquake and tsunami in Japan took a toll on some commodity prices in mid-March, the negative fallout is likely to prove temporary, with Japan quickly gearing up its economy again,” she said in a report.

“Of the events which followed Japan’s earthquake and tsunami, the incident at the Fukushima-Daiichi nuclear plant near Sendai — specifically, the loss of backup electric power needed to cool nuclear fuel rods and spent nuclear fuel — is likely to have the largest impact on overall commodity markets going forward,” she said.

In corporate news, helicopter maker Eurocopter has made a friendly takeover bid for Toronto-based aircraft maintenance firm Vector Aerospace Corp. (TSX:RNO). Eurocopter, a subsidiary of Dutch aircraft giant EADS, says it will pay $625 million in cash for Vector, which primarily performs repairs and overhauls for helicopters.

Vector shares gained 13 per cent or $1.48 to $12.83.

CGI Group Inc. (TSX:GIB.A) said it has extended its 15-year relationship with the Business Development Bank of Canada by winning a multimillion-dollar contract. The Montreal-based information technology company will develop a commercial lending IT program. Shares in the company fell 16 cents to $19.86

Investors are keeping a close watch on developments in the Middle East and North Africa. In addition to Libya, where the rebels appear to be gaining ground on the regime of longtime leader Moammar Gadhafi following further international air strikes, there is increasing unrest in Syria, Bahrain and Yemen.

Markets are also watching developments at the Fukushima nuclear complex after it was hit hard by the March 11 earthquake and tsunami. Suggestions that highly radioactive iodine may be making its way into sea water farther north of the plant than previously thought has added to concerns.

Wall Street stocks were higher as investors take in the first pieces of data in a week full of economic reports, closing with the U.S. government’s monthly payrolls report on Friday.

The U.S. Commerce Department says consumer spending rose 0.7 per cent in February. Personal incomes rose 0.3 per cent. That was after a 1.2 per cent January income increase — the biggest in nearly two years.

The Dow Jones industrial average rose 25.9 points to 12,246.5. The S&P 500 gained 2.7 points to 1,316.5 and the Nasdaq was up 4.2 points to 2,747.29.

A report by the National Association of Realtors says more Americans signed contracts to buy homes in February, but sales were uneven across the country and insufficient to signal a rebound in the housing market.

Its index of sales agreements for previously occupied homes rose 2.1 per cent last month to a reading of 90.8. Sales rose in every region but the Northeast.

Meanwhile, the Canadian dollar could find lift later this week as traders get the latest look at economic growth on Thursday when Statistics Canada releases gross domestic product figures for January. Economists expect the economy grew by 0.5 per cent, the same as the previous month. Such a move up would be the fourth straight month of accelerating activity.

In Europe, Germany’s DAX was up 0.28 per cent while the CAC-40 in France gained 0.12 per cent. In London, the FTSE 100 index was trading 0.36 per cent higher.

Earlier in Asia, Tokyo’s benchmark Nikkei 225 dropped 0.6 per cent to 9,478.53, while Hong Kong’s Hang Seng index shed 0.4 per cent to 23,068.19. Shanghai’s Composite index eked out a 0.2 per cent gain to 2,984.

By Sunny Freeman, The Canadian Press

It was the sixth decline in seven months.

Statistics Canada reports the number of beneficiaries decreased in seven provinces, with the biggest drop coming in Ontario.

The agency says there were 242,400 initial and renewal claims received in January, down 4,900 (2 per cent) from December.

The number of EI recipients fell by 8,400 in Ontario, 1,600 in Quebec and 500 in Alberta.

Claims increased in all other provinces and territories, most notably in New Brunswick where they jumped by 1,100.

Nationally, the number of regular beneficiaries fell by 98,900 (11.3 per cent) between January 2010 and January 2011, with drops in 122 of the 143 cities and towns of 10,000 or more residents.

The board will determine whether the companies are charging too much to borrow money. In Nova Scotia, they can charge $31 for every $100 borrowed the highest rate in the country.

The UARB set the 31 per cent lending rate which includes interest and fees two years ago. It also capped the default penalty at $40 and limited the interest rate on any outstanding balance to 60 per cent.

A payday loan is a short-term loan that people promise to pay back using their next paycheque. The amount borrowed is usually limited to about 30 per cent of take-home pay.

Linda Wilke, a credit counsellor with Credit Counselling Servies of Atlantic Canada Inc., doesn’t understand how the rate can be so high.

“Frankly, I’m baffled by it. Manitoba is 17 [per cent], B.C., I think, is 23 or 21 [per cent.] Like, it’s so out of range, I absolutely don’t understand,” she said. “But somehow the business case was made, and the board thought that that was appropriate.”

Wilke said as the payday loans companies do more and more business in the province, so does she. “Lately I’ve seen a rash of clients who have payday loans,” she said. “People are getting tempted and money is getting tighter.”

But Stan Keyes, president of the Canadian Payday Loan Association, said the lending rate in Nova Scotia is fair.

Keyes said Nova Scotia regulators wisely chose a “marketing approach” to capping fees.

“The lenders will compete with one another and keep the price down,” he said. “[It's] not too unsimilar as going to different grocery chains and getting a better deal on chicken.”

Keyes dismissed the argument that payday loan companies drive people into dangerous debt, saying they’re no more responsible for that than are mortgage companies, banks and credit cards.

The URAB has set aside a full five days for the hearings.

Myth: Payday loans are extremely expensive and have exorbitant interest rates.

Reality:
Payday loans are two-week loans—not annual loans! Industry critics quote the “390% annual percentage rate” to misrepresent the truth and to help make their case. The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15 percent for a two-week duration. The only way to reach the triple digit APRs quoted by critics is to roll the two-week loan over 26 times (a full year). This is unrealistic considering that many states do not even allow one rollover. In states that do permit rollovers, CFSA members limit rollovers to four or the state limit—whichever is less.

But, even if the loan was rolled over for the entire year, the high APR of payday loans pales in comparison to the realistic alternatives considered by consumers.

How does a $100 payday loan compare?

$100 payday advance with a $15 fee = 391% APR
$100 bounced check with $54 NSF/merchant fees = 1,409% APR
$100 credit card balance with a $37 late fee = 965% APR
$100 utility bill with $46 late/reconnect fees = 1,203% APR.

Myth: Payday loans trap borrowers in a never-ending “cycle of debt”.

Reality: Although the phrase “cycle of debt” is a favorite among industry critics, it’s not based on the truth. In states that permit rollovers, CFSA members limit rollovers to four or the state limit—whichever is less. The reality is that a loan cannot be outstanding longer than eight weeks (two-week loan rolled-over four times).

Researchers and state regulators consistently report that 70-80% of customers use payday advances between once a year and about once a month. People who bounce checks and use overdraft protection often do so at a higher frequency. The fact is that a payday advance is more economical than other options.

Myth: Payday lenders take advantage of poor people and minorities.

Reality: Critics of the industry have been successfully perpetuating the myth that the payday advance industry exploits the downtrodden. By perpetuating this myth, they have created a warped idea of the industry’s customer base. Actually, payday advance customers represent the heart of America’s middle class. They are typical hard working adults who may not have savings or disposable income to use as a safety net when unexpected expenses occur.

Here are the facts:

* The majority of payday advance customers earn between $25,000 and $50,000 annually;
* Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;
* Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;
* Forty-two percent own their own homes;
* The majority are married and 64 percent have children in the household; and,
* One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance. *

*Source: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. April 2001.

If you find a study that concludes otherwise, chances are the researcher combined payday lenders with other financial services such as pawnbrokers, car title lenders and check cashing outlets. These entities are in a different line of business and have a different customer base. All payday advance customers have steady jobs and active bank accounts.

Myth: Payday lenders’ high fees help the industry make billions in profits.

Reality: Small denomination, short-term loans are very expensive to originate and maintain, which is why most banks no longer offer the product. According to the Federal Reserve Banks 1999 Commercial Bank National Average Report, the cost for a small bank to originate and maintain a loan for one month is $174.

Industry critics fail to recognize that, in addition to the cost of administering the loan, payday lenders incur the normal overhead costs of running a business and paying employee salaries and benefits.

A study by the FDIC Center for Financial Research found that “operating costs lie in the range of advance fees” [collected] and that, after subtracting fixed operating costs and “unusually high rate of default losses,” payday loans “may not necessarily yield extraordinary profits. ”

Myth: Payday lenders do not want to be regulated.

Reality: Quite the contrary. Our industry is currently regulated in 34 states, and CFSA is working to have all 50 states regulated. While the industry does not want to be regulated out of business (as industry critics would like), it has always supported sound and balanced regulations that protect consumers, while preserving their right to financial options.

Over the past decade, most states have created or maintained a regulatory environment that satisfies the robust consumer demand for these short-term, low denomination loans. Working with CFSA, state policy makers have balanced the interests of the industry with substantive consumer protections that ensure responsible and informed use of the product. As a result, millions of satisfied consumers have enjoyed the convenience and economic benefits of payday advance services without complaint.

Myth: Payday lenders loan money to people who cannot afford to pay it back.

Reality: While customers may not have the ability to repay when taking out the advance, the allegation that lenders do not consider a customer’s ability to pay is completely false. All reputable payday lenders have underwriting criteria, in addition to the requirements of a steady income and checking account. More than 90 percent of payday loans are repaid when due, a fact confirmed by numerous state regulatory reports. It simply would not make good business sense to loan money to people who can’t pay you back.

Myth: Payday lenders use coercive collection practices.

Reality: CFSA member companies are committed to collecting past due accounts in a professional, fair and lawful manner. In accordance with CFSA’s best practices, companies may not pursue criminal actions against a customer as a result of the customer’s check being returned unpaid. If it becomes necessary and is appropriate, however, companies may turn the account over to a collection agency.

Myth: Payday lending has grown dramatically because of aggressive marketing.

Reality: Payday lending has grown as a result of consumer demand and changing conditions in the financial service marketplace. Traditional financial institutions exited the small-denomination, short-term credit market, largely due to the high administration costs. At the same time, the cost of bounced check fees, late payment penalties, and other short-term credit products soared. Consequently, the demand for small denomination and short-term loans grew substantially. Additionally, legislation was enacted to provide regulations and consumer protections for payday advance customers.

Myth: Payday lenders hide fees and mislead consumers.

Reality: The cost of a payday advance is fully disclosed to customers on signs in the stores and in disclosure agreements. Moreover, in accordance with the Truth in Lending Act (TILA), the terms of the loan are clearly outlined in the lending agreement. Payday advances involve single, flat fees and there are no hidden charges, balloon payments or accruing interest. CFSA members also provide an educational brochure emphasizing responsible use of the product and offer a free right of rescission should the customer change their mind.

In a recent survey, 96 percent of payday loan customers said they were aware of the finance charge. A recent study by the Annie E. Casey Foundation found that, “Customers do make a cost analysis in comparing the price of a payday loan with the alternatives…”

Myth: Anti-payday lending activists have consumers’ best interest in mind.

Reality: While they claim to represent the best interest of the consumer, anti-payday lending activists seek to limit the already small number of short-term credit options available.

The reality is that anti-payday lending activists do not represent the views of millions of people who use payday advances responsibly and are glad to have somewhere to turn when they need quick access to credit.

Myth: Consumers win if payday lenders are regulated out of business.

Reality: Critics’ allegations that consumers are better off without this option is far from the truth. Anti-business activists should not be in a position to determine what is right or wrong for hard-working Americans. So-called consumer groups and activists working to ban the payday advance industry do not represent the vast majority of consumers who work hard to make ends meet. The bottom line is that consumers don’t want others making decisions for them. And they especially don’t like the idea of people (who have probably never been short of cash) dictating where they can or cannot borrow money. If critics are successful in regulating the industry out of business, consumers will be forced to turn to offshore Internet and often unregulated rogue lenders for their short-term credit needs.

At the end of the day, consumers win when given a variety of options and trusted to make financial decisions based on what’s best for them and their families.

Make the Process Simple
Nobody wants to spend any more time than they have to in order to get the money they need. Offering loans online and over the phone was the first step we took to make it as easy and convenient as possible to borrow from Payday Loans Canada. We then set ourselves apart from other online payday loan companies by developing Canada’s most secure and convenient faxless application process. Some lenders advertise a no fax payday loan, but the fine print reveals that to use the no fax option, the lender must first contact the customer’s employer. Our process involves no faxing AND no call to the employer. That is our idea of simple.

Provide Knowledgeable and Helpful Staff
With a product as new as payday loans, our customers are looking for knowledgeable and helpful staff who can guide them through the process and answer any questions they may have. That is why we are more than just a website. Our experienced customer service team is available at 1-877-556-2648 to answer questions, explain the process and take applications over the phone.

“These changes will offer consumers protection from high interest rates, unfair business practices and a cycle of debt that many people have trouble getting out of,” said Mackintosh. “We recognize there is a demand for these types of loans and have designed the legislation to ensure the strongest possible level of protection for consumers.”

The proposed changes to Manitoba’s Payday Loans Regulation were announced earlier this year. Now the federal government, which has authority to set interest rates, has issued an order to allow Manitoba to set rates for payday loans. The new maximum rate that can be charged for a payday loan is $17 per $100. The maximum amount of a loan can only be 30 per cent of a person’s next net pay. Manitoba’s rate is the lowest in the country among provinces that effectively allow payday loans.

Additional regulations include:
· terms and conditions in loan agreements must be disclosed in a way that is clear and understandable to borrowers;
· all fees are to be included in the cost of credit, whether or not they are optional;
· the maximum fee for a replacement loan is five per cent;
· lenders, including brokers, must be licensed and bonded;
· Internet lenders will be regulated, ensuring they operate with the same rules as a lender with a storefront location;
· written consent is required for a lender to verify a borrower’s employment; and
· lenders cannot make unauthorized withdrawals from a borrower’s account or use rewards or incentives to entice borrowers to get a loan.

These changes result from consultations with stakeholder groups like the Consumers’ Association of Canada (Manitoba), Manitoba Society of Seniors, Winnipeg Harvest, the Canadian Payday Loan Association and a number of payday lenders, the minister said.

He added, strong payday loan legislation is part of the five-year Let’s Make a Better Deal consumer protection strategy. For more information on the payday loan legislation, contact the Consumer Protection Office at 204-945-3800, 1-800-782-0067 (toll-free) or by email at consumers@gov.mb.ca.

“There’s a large percentage of revenues that are generated from other services not related to payday advances that actually subsidize the product,” Gordon Reykdal said Monday in an interview.

“That is taking place in those lower-capped areas. There’s definitely cross-subsidization.”

Reykdal made the comments during a break in a provincial Utility and Review Board hearing in Halifax.

The board is reviewing provincial payday loan regulations that allow lenders such as The Cash Store and Money Mart to charge as much as $31 per $100 borrowed. Those two companies own most of the payday loan outlets in Nova Scotia.

Other jurisdictions have much lower payment caps. Payday loan charges are capped at $17 per $100 in Manitoba, at $21 per $100 in Ontario and at $23 per $100 in Saskatchewan, Alberta and British Columbia.

Reykdal, who earlier testified at Monday’s hearing, said Nova Scotia’s $31 cap, the highest in the country, reflects free-market conditions.

“We’ve always supported and recommended a market-based approach in all the jurisdictions across Canada and, quite frankly, we think that Nova Scotia has got it right and provides the best protection for consumers by allowing a free market to operate.”

During the hearing, Cash Store officials said a lower cap would hurt competition by driving lenders out of the market.

Company officials said a lower cap would also force lenders to cut services and turn away high-risk borrowers.

Consumer advocate David Roberts rejected the argument that a lower cap would have to be subsidized by other financial services.

“One of their justifications for $31 is that in Nova Scotia you can get access to a MasterCard and have your loan paid through that and they don’t charge for it,” the board-appointed advocate said in an interview.

“That’s the only justification that they’ve suggested for the higher rate here and it’s based purely on a business decision that they made.”

Roberts, a Halifax lawyer, said payday loan regulations are meant to protect consumer interests and to limit the cost of borrowing as much as possible.

“The $31 figure doesn’t do either. There’s just no justification for Nova Scotia to be so far out ahead of the other provinces.”

The consumer advocate has filed a report at the hearing that has concluded Nova Scotia doesn’t have enough different payday lenders to keep prices in check. He has recommended that the province adopt a $21 cap.

Nova Scotia was one of the first provinces to regulate the payday loan industry. It set the $31 cap in 2008.

The Canadian Payday Loan Association says the review is premature because the provincial industry hasn’t had enough time to develop since regulations were introduced.

The hearing was expected to hear submissions from the Anglican Church of Canada, Credit Counselling Services of Atlantic Canada and the Nova Scotia Government and General Employees Union on Monday night.

N.S. ‘has got it right’ with 31% interest rate

By BRUCE ERSKINE Business Reporter, The ChronicleHerald.ca

New maximum interest rates for payday loans and additional consumer protection measures will take effect Oct. 18, Family Services and Consumer Affairs Minister Gord Mackintosh announced today.

“These changes will offer consumers protection from high interest rates, unfair business practices and a cycle of debt that many people have trouble getting out of,” said Mackintosh. “We recognize there is a demand for these types of loans and have designed the legislation to ensure the strongest possible level of protection for consumers.”

The proposed changes to Manitoba’s Payday Loans Regulation were announced earlier this year. Now the federal government, which has authority to set interest rates, has issued an order to allow Manitoba to set rates for payday loans. The new maximum rate that can be charged for a payday loan is $17 per $100. The maximum amount of a loan can only be 30 per cent of a person’s next net pay. Manitoba’s rate is the lowest in the country among provinces that effectively allow payday loans.

Additional regulations include:
· terms and conditions in loan agreements must be disclosed in a way that is clear and understandable to borrowers;
· all fees are to be included in the cost of credit, whether or not they are optional;
· the maximum fee for a replacement loan is five per cent;
· lenders, including brokers, must be licensed and bonded;
· Internet lenders will be regulated, ensuring they operate with the same rules as a lender with a storefront location;
· written consent is required for a lender to verify a borrower’s employment; and
· lenders cannot make unauthorized withdrawals from a borrower’s account or use rewards or incentives to entice borrowers to get a loan.

These changes result from consultations with stakeholder groups like the Consumers’ Association of Canada (Manitoba), Manitoba Society of Seniors, Winnipeg Harvest, the Canadian Payday Loan Association and a number of payday lenders, the minister said.

He added, strong payday loan legislation is part of the five-year Let’s Make a Better Deal consumer protection strategy. For more information on the payday loan legislation, contact the Consumer Protection Office at 204-945-3800, 1-800-782-0067 (toll-free)

Voters will decide more than 150 initiatives and referendums on statewide ballots Tuesday. Such public questions have long been an important check on government power and this year is no exception. While most won’t affect your personal freedom either way, some 32, by my count, will be a boost to liberty and free markets, if approved, and only 10 would set back that cause. On one side are measures to cap or cut taxes and fees, prevent the government from forcing citizens to buy health insurance, and suspend onerous environmental laws. An Arizona ballot question would end affirmative action in public hiring and contracting. On the other side are proposals to institute an income tax in Washington state, allow a simple legislative majority rather than a two-thirds vote to raise fees and charges in California, and ban smoking in privately owned restaurants, bars and casinos in South Dakota.

From what I can tell, only one measure would directly put companies out of business and cripple an entire industry. It bears a closer look because it involves a question that’s been debated for thousands of years: what interest should be charged for lending money. In Montana, voters will decide whether to cap the annual rate that payday and other consumer lenders may charge; banks would be exempt. A range of liberal groups, including the AARP and the Service Employees International Union, is backing the initiative. Their appeal to voters is emotional: Unscrupulous, predatory lenders exploit easily fooled senior citizens or people down on their luck and desperate for cash by charging exorbitant rates, sometimes even 300% or 400% a year. Capping the rates, proponents argue, will enable needy borrowers to get the cash they need at a much lower price. All in all, it’s a play for the economically illiterate vote.

The reality is different. A 2007 study by the Federal Reserve Bank of New York said payday loans shouldn’t be considered “predatory” because they often make customers better off by making it easier for them to get credit. Another study, by a researcher and an economics professor in 2008, found “no empirical evidence that payday lending leads to more bankruptcy filings, which casts doubt on the debt trap argument against payday lending.” Most importantly, capping rates won’t make the loans more affordable; instead the loans won’t be available at all. In fact, borrowers might pay more in fees if they can’t get loans and end up bouncing more checks. Similar unintended consequences occur whenever the government controls a price in the name of helping people. Look at the rapid rise in the minimum wage the last few years, which has put extra money in some pockets but destroyed lots of jobs for low-income workers, as seen by the skyrocketing unemployment rate for teenagers and other young workers.

Proponents portray the proposal as pro-consumer because rates would be capped at 36%. To the layman, 400% a year sounds very high, but borrowers typically repay their loans in a few days or weeks, so they never pay all of that interest. On a $100 loan, these lenders might collect $15. But limit that interest to 36% and the lender picks up $1.38. “Ask yourself, would you make an unsecured $100 loan to a stranger for $1.38?” as the argument against the initiative puts it in the official voting guide.

That’s the crux of the issue. Payday and other non-bank consumer lenders take tremendous risks handing over money to customers they often don’t know and who have a very high default rate. These lenders don’t have the FDIC or TARP safety net enjoyed by banks. They need to look the borrower in the eye, size up their employment record, financial situation and sincerity, and then make an educated guess on whether they’ll see their $75 or $2,000 ever again.

Laws like this usually end up putting dozens of mom-and-pop outfits out of business and sending hundreds of employees to the unemployment line. Expecting the measure to pass, nationwide chains such as Advance America have already closed outlets in the state. The interest rates allowed are just too low to cover the losses from deadbeats. In 2008, a 24% interest-rate cap took effect in Washington, D.C. and soon every licensed payday lender had disappeared from the market and such loans were no longer legally available anywhere in the city. A 36% cap began July 1 in Arizona, forcing many payday loan companies to shut down. At least 15 states ban or make it impossible to make payday and other high-interest consumer loans, nearly all in the Northeast. “Any time you limit consumers’ choice, it is not a good thing,” says Bernie Harrington, who owns the EZ Money chain in Montana.

Nancy Vermeulen and her husband, Michael, are figuring out how to stay in business if voters institute the cap next week. They moved to Montana in 2002, drawn by Montana’s generally good environment for business—on Tuesday, the Washington, D.C.-based Tax Foundation cited the state as having the sixth-best business-tax climate in the country—and also by the good terrain for falconry, Michael’s hobby. It’s the classic entrepreneurial story: After years of working for big banks, Michael wanted to be his own boss and saw a niche for serving low-end customers whom banks were avoiding. The couple started Square One Finance in the state’s biggest city, Billings, put up their own capital, and painstakingly built it to the point where it can support their middle-class family of four—their two boys are in grade school. The firm doesn’t do payday loans, only regular consumer installment loans. The initiative threatens the flexibility that serves its customers best and keeps the business profitable. “Now I get very involved with customers, form relationships with them, work with them to manage their debt, and start legal proceedings only as a very last resort–because working with them is the most cost-effective method, given the freedom we have now,” says Nancy. “If I lost that freedom I will likely have to get much tougher as soon as I see the beginnings of a default.”

What’s interesting is that the recent moves to go after “loan sharks” and institute untenable usury laws run counter to the trend outside the U.S., where microcredit—small loans at high interest rates, usually to start businesses—has taken off. Muhammad Yunus, the microcredit pioneer and founder of Bangladesh’s Grameen Bank, won the Nobel Peace Prize in 2006. But while the developing world–where microcredit is most popular–trusts often-uneducated villagers to understand the loan terms and repay the money, U.S. laws build a protective Nanny state. Said Nancy in a letter to the Billings Gazette, addressing voters: “If you vote for it, you will be saying that people like my customers should not be allowed to make their own financial decisions, that you should make financial decisions for them. Customers, don’t let someone else run your financial life. Don’t let them treat you like a child, even if they promise it is for your own good. It never is.”

John Koppisch, Forbes