Remember Obama phones? Now it’s Obama loans.
The Obama administration is trying to muscle in on the small-dollar loan market, in part by muscling out the online lending industry.
It is ordering banks to go against the advice of their regulators and step up small-dollar lending to economically disadvantaged customers. It’s toying with the idea of offering banking services, including consumer loans, through the Postal Service.
And this week we learned the Treasury Department is asking for $10 million to provide small loans to people with questionable credit through community development organizations. It’s ACORN going into the payday loan business. What could go wrong?
The administration says it is acting on behalf of moderate-income Americans who are exploited and driven into credit hell by their involvement with online loans. What it doesn’t say is its own policies – the giveaways to big banks embodied in Dodd-Frank, the exorbitant fees and penalties banks impose and the daunting roadblocks they erect to people who need small-dollar consumer loans.
It harasses the only reliable credit provider for 40 million Americans in the name of “helping” them. But is that truly the goal?
States already do a good job of regulating these loans, but the federal government can’t leave it alone. It wants new rules that will require online lenders to delve into every aspect of their customers’ lives to determine their ability to repay. The industry already takes care of that – it doesn’t want to charge off loans – and it recovers nearly 95 percent of the money it lends.
But the idea of the rule is to make it so onerous to get one of these loans, people won’t use online lending. Which would make it like, well, all other lending – inaccessible to the very people the administration claims it is trying to help.
Drive them out of business. Replace that business with government-backed loans. Folks, that’s socialism.
The Consumer Financial Protection Bureau knows it can’t quite get there from here. It knows the $73 billion in loans online lenders issued last year can’t be replaced without creating huge problems for low- and moderate-income borrowers.
So it is trying to persuade banks to create small-dollar loan initiatives for moderate- and low-income customers. The banks say they will think about it … but it must be “easy to use so banks can make loans quickly.”
The online lenders say the banks still won’t touch this because it doesn’t conform to their business models. Banks might do it if the government provides enough incentives. But if it was a natural way for them to go, they would be doing it now.
Moreover, the online loan industry already offers products that banks, for their own economic reasons – and because of prior regulatory behavior by the government – don’t. Its business model calls for taking changes on customers. Banks’ business model calls for never having a loan go bad. They’re compatible, and banks’ formula generates twice the profits.
So there is no reason to favor one over the other except that government wants to use one to knock out the other.
Last week, a subcommittee headed by Rep. Randy Neugebauer, R-Texas, held a hearing entitled, “Short-term, Small Dollar Lending: The CFPB’s Assault on Access to Credit and Trampling of State and Tribal Sovereignty,” which looked at the issue.
One witness, Thomas Miller of Mercatus Institute at George Mason University, said reducing the supply of credit to low- and moderate-income people won’t reduce demand, but it will drive customers underground. He also said states have a long history of regulating consumer loans, and the federal government should choose the most successful of those measures as models.
Another of the witnesses was Greg Zoeller, the attorney general of Indiana.
He too talked about the careful web of “consumer friendly protections for all borrowers” the state had established. He said Hoosiers “have worked hard to strike this balance between access to credit and protection against predatory lenders.”
And he feared the proposed federal regulations “would throw off this balance and reduce access to short-term loans for the people in my state and others who need this type of financial assistance the most and who need it from reputable lenders.”
Unfortunately, that seems to be the whole idea. The federal government does not cherry pick the best ideas from the states. It does not regulate, as Indiana does, to help the industry and its customers succeed.
It wants failure. It wants to put online lending out of business. It knows there are no viable alternatives in the market. It knows working class people need access to credit. It knows the industry has figured out a way to do this indefinitely.
And it knows if it can knock out this one pesky industry, it can make government the official bank of moderate- to low-income Americans.
No wonder the Democrats can’t explain the difference between what they’re for and socialism.