I’ve taken a fair amount of heat for calling out the Obama Administration and the Consumer Financial Protection Bureau (CFPB) for its political attack on alternative lending sources, but I’m comfortable that it’s the right thing to do. The ironic thing is that this is not a partisan issue at all. Real people are being harmed by the federal government and consumers of these lenders are the ones who get hurt.
The success stories of people who have taken small dollar short term loans is not told enough. We constantly hear a drumbeat that people who take short term loans enter a “debt trap,” yet many who take those loans are trying to use that fast cash to avoid the debt traps of defaulting on a mortgage or getting a car fixed. There will be middle and low income people who will be hurt by the CFPB’s new proposed rule that is ironically being marketed as protection for these people.
The Small Dollar Lending Rule is what the Administration wants and it is an assault on the free market and nothing less. It shouldn’t come as a surprise that this Administration is against the free market. Government trying to protect people from the free market will end up regulating a whole industry out of existence and then that same government will be called upon to fix a situation they created.
What is a surprise, is that they put that love of enlarging government over the needs of the little guy. The Administration and the CFPB climb right in bed with the “Big Banks” and seek to serve their selfish goals even at the expense of the people at most risk and most need of alternative sources of funding.
Small dollar and short term lending is usually found through “Pay Day” loan businesses, but it is also many forms of online lending. The large banks don’t like it because they can’t control it. So instead providing a better and more viable product to earn market share…they use their friends in government to legislate the competition out of business.
Enter Robert Sherrill. He has utterly amazing story of the success of short term lending. He recently wrote a fantastic piece telling his tale from convict to successful entrepreneur. He attributes the key to that success was his access to funds in the alternative forms of lending. Exactly the kind of funds our government is trying to regulate into oblivion.
Sherrill’s wrote in The Hill that “ten years ago, I started a commercial cleaning business, Imperial Cleaning Systems, Inc. in my hometown of Nashville, Tennessee. Today I have 20 employees.” The reason why Sherrill could do so was because of a small dollar loan. He wrote “as most small-business owners know, starting your own company isn’t easy. Cash isn’t always available to grow your company, and banks and credit unions don’t make loans less than $1,000 to people like me, or to anyone else for that matter. Access to credit is hard to come by for many small-business owners, but next to impossible for those of us who’ve made mistakes in our past. Personal loans, known as payday and title loans, were my only option to keep my business afloat.” And they did.
You don’t hear enough stories about the success of small dollar loans, but Sherrill did. He said that “these loans saved my business and may have saved my life. The CFPB says these loans are too expensive. I’ve found that the most expensive credit is the credit you can’t get.” He even testified before Congress to the House Financial Services Committee about his success story in February of this year.
It goes without saying the people who use payday loans are at risk. They wouldn’t be there borrowing money if they didn’t need it badly and right now. The government taking away some of the only sources to money these people have in their greatest time of need is only going to make their struggle worse. And quite honestly, it will lead to higher crime rates and more broken families.
Will the Big Banks step in and provide short term funding if the federal government is successful in regulating many of the companies out of business? I don’t think so. And guys like Robert Sherrill will be the ones hurt.