{"id":26359,"date":"2023-11-27T15:51:50","date_gmt":"2023-11-27T20:51:50","guid":{"rendered":"http:\/\/cfif.org\/v\/freedom_line_blog\/?p=26359"},"modified":"2023-11-27T15:57:52","modified_gmt":"2023-11-27T20:57:52","slug":"new-study-shows-how-overregulating-short-term-lenders-harms-consumers","status":"publish","type":"post","link":"https:\/\/cfif.org\/v\/freedom_line_blog\/26359\/new-study-shows-how-overregulating-short-term-lenders-harms-consumers\/","title":{"rendered":"New Study Shows How Overregulating Short-Term Lenders Harms Consumers"},"content":{"rendered":"

We at CFIF have consistently highlighted<\/a> the peril of federal, state and local government efforts targeting the short-term consumer lending sector.<\/p>\n

Less than two years ago, we specifically sounded the alarm on a New Mexico law<\/a> artificially restricting interest rates on short-term consumer loans.<\/p>\n

Well, a new study<\/a> entitled “A New Mexico Consumer Survey:\u00a0 Understanding the Impact of the 2023 Rate Cap on Consumers” that surveyed actual borrowers confirms our earlier warnings:<\/p>\n

Key findings include:<\/p>\n

\u2022Short-term,small-dollar loans help borrowers manage their financial situations, irrespective of the borrower\u2019s income.<\/p>\n

\u2022The rate cap has failed to improve the financial wellbeing of New Mexicans, specifically those who had previously relied on short-term, small-dollar loans.<\/p>\n

\u2022Most former short-term, small-dollar loan users struggled with paying their bills since the rate cap took effect on January 1, 2023. At the same time, a majority of borrowers indicated they were unable to access credit at some point following the rate cap.<\/p>\n

\u2022When unable to obtain credit, consumers said they were left with poor alternatives, including late bill payments, skipping urgent appointments or vital expenses, or pawning valuables.<\/p>\n

\u2022The vast majority of borrowers want the option to return to their previous lender, demonstrating support for the loan options available before the rate cap.”<\/p><\/blockquote>\n

The lesson is once again obvious:\u00a0 Although bureaucrats claim to help struggling consumers through such overregulatory efforts as capping repayment rates, the real-world impact only eliminates a source of reliable, legal short-term loans to navigate temporary emergencies.<\/p>\n

To illustrate, a 2018 Federal Reserve System Board of Governors study on the economic wellbeing of U.S. households<\/a> found that almost 40% of U.S. families don\u2019t couldn’t cover even $400 in emergency expenses.\u00a0 Outrageously, 51% of military service members<\/a> live paycheck-to-paycheck.\u00a0 Unfortunately, credit cards aren\u2019t always a viable option, and traditional bank loans are unavailable due to the small amounts needed.\u00a0 Although higher-income Americans with stronger credit histories can borrow from banks, use assets they possess as leverage or use their savings amounts, people with lower credit scores and little in savings cannot.\u00a0 According to the Fair Isaac Corporation<\/a>, some 46% of consumers possess credit scores below 700, meaning that traditional bank loans aren\u2019t possible for them.<\/p>\n

Fortunately, short-term consumer finance loans can allow struggling Americans to access money needed to meet emergencies.<\/p>\n

Under counterproductive laws like New Mexico’s, however, consumer finance lending becomes less available.\u00a0 The unintended consequence of that is sadly foreseeable:\u00a0 More people seek out illegal loansharks, suffer overdrafts, or simply fail to cover temporary costs.\u00a0 As the World Bank found<\/a>, such regulatory and legislative efforts as New Mexico’s lead to \u201cincreases in non-interest fees and commissions; reduced price transparency; lower number of institutions and reduced branch density; and adverse impacts on bank profitability, in addition to the lack of access for smaller and riskier borrowers.\u201d<\/p>\n

As expected, New Mexico’s H.B. 132 restrictions are already punishing the very people that it ostensibly claims to protect, making consumer finance lending more difficult, more expensive and less available.\u00a0 It offers an ominous warning to other jurisdictions considering similar laws, and a quick lesson to New Mexico political leaders who can correct their mistake.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

We at CFIF have consistently highlighted the peril of federal, state and local government efforts targeting the short-term consumer lending sector. Less than two years ago, we specifically sounded the alarm on a New Mexico law artificially restricting interest rates on short-term consumer loans. Well, a new study entitled “A New Mexico Consumer Survey:\u00a0 Understanding […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[5160,5202,5159,5162],"class_list":["post-26359","post","type-post","status-publish","format-standard","hentry","category-posts","tag-consumer-lending","tag-fintech","tag-loans","tag-short-term-lending"],"_links":{"self":[{"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/posts\/26359","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/comments?post=26359"}],"version-history":[{"count":4,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/posts\/26359\/revisions"}],"predecessor-version":[{"id":26363,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/posts\/26359\/revisions\/26363"}],"wp:attachment":[{"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/media?parent=26359"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/categories?post=26359"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cfif.org\/v\/freedom_line_blog\/wp-json\/wp\/v2\/tags?post=26359"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}