Bill Description: Senate Bill 1285 would impose new regulations to cap the interest rate that may be charged by payday lenders. 

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Does it give government any new, additional, or expanded power to prohibit, restrict, or regulate activities in the free market? Conversely, does it eliminate or reduce government intervention in the market?

Senate Bill 1285 Section 28-46-412, Idaho Code, which regulates institutions that offer short-term loans, also known as payday loans. The bill would add a new regulation stating, "The maximum amount of the APR expressed as a dollar amount pursuant to subsection (1) of this section shall not exceed thirty-six percent (36%) of the principal amount of the loan."

Not only would this provision be a new regulation that interferes in the operation of the free market, but it could also harm those it purports to protect. The interest rate paid on a loan is largely based on the financial circumstances and creditworthiness of the borrower. When government caps the interest rate at a very modest amount, lenders may be unwilling to take the risk of lending money to those with very bad credit. 

It should also be noted here that while 36% may sound like a high interest rate, it's the annual percentage rate, not the dollar amount of interest paid on a short-term loan. Payday loans are capped at $1,000, which means that, under this bill, the maximum interest accrued for a one-month, $1,000 loan would be just $30. 

Certainly, there are circumstances where an individual would be willing to pay $40 or $50 to borrow $1,000 for a month, but under this bill, he would be denied that opportunity. 

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