Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 17, 2012

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Payday loans present society with a paradox. These forms of borrowing are meant to serve those who have bad credit scores. In order to satisfy that demographic, lenders charge high fees as a means to protect themselves from losses. However, the bad credit population is the very last group that needs to be subjected to high fees, given their financial situation.

Usually, those who apply for cash advance loans are those who absolutely need the money. Emergency situations, unexpected expenditures, looming bills that are in danger of being late—any of these circumstances could justify the need for a quick paycheck advance.

Consequently bad credit borrowers facing these obstacles have to make one of two equally unpleasant choices: take out a cash advance loan at an incredibly steep fee, or go without the money they need to conquer their current financial dilemma.

Either decision often results in economic hardship.

This payday loan catch-22 is a perfect example of a concept that was first identified over seven centuries ago.

Two Roads Leading to the Same Destination

John Morton was a famous 15th century English prelate and Archbishop who became immortalized after giving a statement about tax collecting.

Morton said that nobody should be exempt from government-imposed taxes. According to his logic, the rich have an abundance of money, and thus can easily afford to meet the King’s taxes. The poor, on the other hand, are forced to save their money if they are to successfully live, which consequently means they have a stockpile of money in which they can draw from to meet the King’s taxes. Because Morton believed that both the rich and the poor can afford to spare money, he announced that everybody should pay taxes.

This logic (or lack thereof) has been used to describe any unfortunate predicament in which somebody must choose between two equally unpleasant choices (i.e. to be rich or poor, it matters not: you still pay taxes). Such situations have been aptly dubbed a Morton’s Fork.

Consider one of the most distinct Morton’s Forks in western history: being denounced as a witch in the 17th and 18th centuries.

According to common belief at the time, witches floated in water while non-witches sunk. Women who were accused of being witches would be tied up and tossed into a body of water. If the accused floated, she would be removed from the water and burned alive for being witch. However, if she sunk—and thus drowned—she would be deemed innocent.

Either outcome resulted in death.

Our Current Financial Morton’s Fork

Cash advance loan borrowers may feel like they’re forced to choose between two seemingly different roads, only to find that—regardless of their initial choice—the final destination is the same.

If they take out a cash advance loan, they agree to borrow money at near usurious interest rates. If they don’t borrow money though, they fail to repay whatever emergency expenditure has arisen. Either choice results in negatively impacting one’s financial situation.

Interestingly, while both paths of this Morton’s Fork lead to the same destination, each path serves as the foundation for the separate arguments of both industry supporters and industry opponents.

Supporters say that payday loans need to exist, otherwise our bad credit population would be forced to go without financing.

Opponents say that cash advance loans shouldn’t exist because the high rates are predatory and unjustifiable.

Neither supporters nor opponents (at least en masse) seem savvy to the fact that both of their roads (usually) lead to the same destination.

How Can These Roads Be Made More Unique?

But that begs the question, “How do we correct this?”

How can we offer “unlendables” cash when they need it, but at the same time protect the cash advance loan lenders who are putting their money on the line?

The government recently created the Consumer Financial Protection Bureau (CFPB) to figure out a solution to that exact question.

Their hope is to improve cash advance loans to be both helpful and secure.

While the CFPB has yet to resolve this issue, they have announced that they’re hoping to provide an intelligent and acceptable answer after listening to the arguments from both consumer advocates and industry insiders alike.

If there is a way to make these two paths unique, and thus put an end to this Morton’s Fork, it will only be found by approaching this problem as the CFPB currently is.