Business Review Board / June 2, 2016

Obama Turns to Squelch the Payday Loan Industry

Another day, another Obama regulation.

Another day, another Obama regulation. The Consumer Financial Protection Bureau — the agency started by Barack Obama in response to the 2008 recession — announced reams of new regulations Thursday on the payday loan industry. Currently, the short-term loans given to mostly low-income Americans using future paychecks as collateral is a nearly $40 billion business. With the industry’s high interest rates and ability to push forward the repayment of debt for a fee, some Americans have become mired in debt. The administration’s proposed rules will make it harder for the industry to collect debts and will require them to verify the income of borrowers before lending.

And while the business appears shady, the government’s proposed regulation is equally as murky. CFPB, arguably the most unaccountable bureaucracy in Washington, proposed more than 800 pages of regulation in 2013 designed to prevent another housing bubble. There are nearly twice as many pages in these payday loan rules.

As columnist Thomas Sowell wrote two years ago, “People who believe in government-set price controls — whether on interest rates charged for loans, rents charged for housing or wages paid under minimum wage laws — seem to think that this is the end of the story. Yet there is a vast literature on the economic repercussions of price controls.”

As much as Washington elites might not like to admit it, payday loans can be used by Americans with poor credit as a source of emergency cash. According to a recent poll conducted by the Associated Press and NORC Center for Public Affairs Research, the majority of Americans admit they do not have enough money accessible to cover a $1,000 emergency, whether it be a car repair, emergency room visit or any other unexpected expense. The nation’s median household income is about $53,000 a year, yet 75% of Americans with incomes $50,000 or below couldn’t scrape together at least $1,000 to handle an emergency — nor could 67% of households bringing home between $50,000 to $100,000. And while it’s immoral to trap poor people in a cycle of crushing debt, it’s equally immoral and belittling to remove options from people who are managing the money they do have.

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