Of pawn stars and lawsuit loans

Rick Harrison of Las Vegas, the real-life pawn shop operator who's featured on the year-old History Channel TV program "Pawn Stars," also operates a separate business called Sierra Settlements, out of the same downtown address.

Sierra Settlements advances money to plaintiffs based on pending civil lawsuits.

Obviously, this largesse comes with a price. Such firms charge interest rates which some have called "predatory."

But those who have drawn on his services to tide them over while waiting for a case to wend its way through the courts express some gratitude, and Mr. Harrison defends his rates:

"Quite frankly, people who get in car wrecks need a little cash to get by. If a lawsuit is lost, we can't do anything to get the money back. There's a large risk involved," he says. Factoring in that risk factor justifies the high rates of interest, according to those in the business.

In the spring of 2009, shortly before the History Channel show started airing, the Nevada Financial Institutions Division issued Mr. Harrison a cease and desist order, contending he was operating a lending business without a proper license. The bureaucrats eventually backed off when they realized state law didn't address Mr. Harrison's new vocation.

Needless to say, the regulators have merely made a tactical withdrawal to lick their wounds and come up with a new plan. Nothing offends a bureaucrat more than discovering some branch of human endeavor which is not yet "adequately" taxed and regulated.

The Financial Institutions Division is now reviewing proposed additional regulations, which would require companies giving loans backed by the collateral of a pending lawsuit to maintain regular business hours in a clearly visible place of business. The regulation would also prohibit such firms from lending money over the Internet to residents of other states without acquiring the appropriate licenses in other states.

Loaning money on the uncertain collateral of a pending lawsuit -- which the plaintiffs' attorneys are not themselves supposed to do, by the way -- certainly sounds like "lending." So if lending institutions are supposed to be regulated -- as are pawnshops, for instance -- then some minimal government regulation may make sense.

But does requiring such a business to maintain a free-standing place of business really benefit consumers --- or merely make it easier for regulators to stop by and collect their taxes and fees?

The best way to reduce costs to those in need of such services is to encourage competition, since only free-market competition with relative ease of entry can reliably drive down interest rates. Regulation should be as minimal as is compatible with reasonable efforts to limit the ripping off of consumers by fly-by-nights.

Left to their own devices, for some reason, the regulators often seem to lose sight of that.