In our Liberty Update this week, we highlight the Biden Administration's role in rising inflation, some…
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Image of the Day: Good News - As Inflation Accelerates Elsewhere, Internet Service Costs Actually Decline

In our Liberty Update this week, we highlight the Biden Administration's role in rising inflation, some of its under-discussed negative consequences and its shockingly tone-deaf responses and rationalizations.  In  positive news from NCTA, The Internet & Television Association, however, internet service provider costs are actually declining:

[caption id="" align="aligncenter" width="520"] Good News: Internet Service Costs Decline[/caption]

 …[more]

October 26, 2021 • 09:47 AM

Liberty Update

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Short-Term Lending Regulation Punishes Lower-Income Americans and Drives Them Underground Print
By Timothy H. Lee
Thursday, January 28 2021
Such laws only serve to harm the poorer Americans they claim to protect.

Want to punish lower-income Americans amid this protracted period of economic stress and social uncertainty, while sanctimoniously claiming to act on their behalf?  

If so, there’s a simple way to do it:  Use government overregulation to deprive them of access to legal, above-board, reputable short-term credit that helps millions of Americans navigate sudden financial emergencies.  

At the federal, state and local levels, busybody regulators who pretend to know what’s best for struggling Americans target short-term lenders, in some areas effectively driving them out of business and steering desperate consumers toward far riskier sources of lending.  States like New York impose punitive regulatory burdens and draconian interest caps upon such lenders, which inevitably drives desperate borrowers toward people like Jonathan Braun in New York, who threatened people unable to pay through such threats as, “I will take your daughters from you.”  

Alarmingly, after a beneficial respite during the Trump Administration, the Biden Administration may also seek to resume the counterproductive campaign to target lenders at the federal level, working alongside a Senate run by Chuck Schumer (D – New York) and a House led by Nancy Pelosi (D – California), ultimately harming those they insist they’re helping.  

Although some people conceptualize short-term lenders in an unfairly negative manner, and although tighter regulation of lending services and repayment rates may possess superficial appeal to some, the simple real-world fact is that for many Americans, such lenders offer the only reliable and legal source of temporary funding to overcome unexpected emergencies.   

That shouldn’t come as a surprise.  In a recent study, for example, the Federal Reserve System’s Board of Governors found that nearly 40% of Americans possess insufficient savings to pay an emergency expense of even $400.  Perhaps even more sobering, over half of military service members live paycheck-to-paycheck.  

For millions of Americans in that situation, seeking a traditional bank loan isn’t an option.  Credit cards aren’t always viable for them, and more traditional bank loans aren’t an option due to the small amounts involved.  Whereas higher-income Americans with stronger credit history and available collateral can borrow from traditional banks or use their savings amounts, those with lower credit scores and without sufficient savings cannot.  According to the Fair Isaac Corporation, some 46% of consumers possess credit scores below 700, meaning that traditional bank loans simply aren’t available to them.  

It’s therefore no wonder that Americans borrowed $90 billion in short-term loans in 2018 alone.  And here’s another dirty little secret:  Consumer complaints to the federal government regarding payday loans totaled 2,900 in 2017, compared to 26,700 against credit card companies and 37,300 for mortgage lenders.  

For struggling Americans fortunate enough to live in areas that haven’t driven consumer finance lenders out of business, they can access the short-term money they need.  But if sanctimonious leftists and busybody bureaucrats who think they know better get their way, consumer finance lending will become less and less available.  

Anyone foolishly cheerleading such regulatory efforts should instead pause and consider where that path leads.  

Namely, such short-sighted regulatory efforts lead to more people employing illegal loansharks, bouncing checks or simply failing to pay critical bills like rent, food, power or insurance.  As the World Bank has determined, oppressive regulation of legal short-term lenders leads to “increases 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.”  

How is that a fair or optimal outcome?  

Such laws only serve to harm the poorer Americans they claim to protect.  

The last thing that anyone hoping to help lower-income Americans should do is eliminate above-board short-term lenders who provide what may be people’s only source of money to get them through dire moments.  Yet that’s what oppressive regulations making short-term lending impossible do.  And who benefits most?  Underworld types like Mr. Braun.   

That’s not an alternative that government at the federal, state or local levels should invite.  

Quiz Question   
How many states currently do not observe Daylight Saving Time?
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Notable Quote   
 
"One of the many awful things about our tax debate -- and our tax system -- is its infantilization of the American people and its degradation of citizenship. A tax system that is designed to fund the needful things the federal government does -- from making roads to making war -- is a tax system pure and simple, the goal of which is to collect sufficient revenue while doing a minimum of violence to…[more]
 
 
—Kevin D. Williamson, National Review
— Kevin D. Williamson, National Review
 
Liberty Poll   

Do you support or oppose any expansion beyond current regulations of bank reporting account holder financial transactions to the IRS, regardless of threshold amount?