Words are not the only things that enable political rhetoric to magically transform reality. Numbers can be used just as creatively-- and many voters are even more gullible about statistics than they are about words, apparently because statistics seem more objective.

The latest Congressional crusade is to clamp down on small finance companies that provide "payday loans" and check-cashing services in many low-income neighborhoods where there are few banks.

A common practice in making small loans of a few hundred dollars for a few weeks is to charge about $15 per hundred dollars lent. Politicians, the media, community activists and miscellaneous other busybodies are able to transform these numbers into annual percentage charges of several hundred percent, thereby creating moral melodramas and demands that the government "do something" about such "abuses."

Of course, these loans are seldom borrowed for a year. They are often loans for a couple of weeks or less, to meet some difficulty of the moment by people who live from payday to payday, whether they are being paid by a job or are receiving checks from Social Security, unemployment compensation or welfare.

The alternative to getting a payday loan may be having the electricity cut off or not having money to buy some medication. It is worse to borrow from illegal loan sharks, who have their own methods of collecting.

While $15 per hundred dollars may sound like a high rate of interest, it is not all interest. The finance company incurs costs just to process a loan, and these costs are a higher proportion of the total cost for a small loan than for a large loan.

When Oregon imposed a limit of 36 percent annual interest on what a finance company could charge, that meant charging less than $1.50 for a hundred dollar loan for a couple of weeks. A dollar and a half would probably not even cover the cost of processing the loan, much less the risks of default.

Not surprisingly, most of the small finance companies making payday loans in Oregon went out of business. But there are no statistics on how many low-income people turned to loan sharks or had their electricity cut off or had to do without their medicine. Continued...