Government-Directed Lending Comes to America

In perhaps the greatest example of wishful thinking we’ve seen in recent times, the Consumer Financial Protection Board Administrator Richard Cordray testified before Congress last month that banks and credit unions should step up their loans to low-income workers with poor credit by creating new products that compete with payday loans. It is a notion that’s completely at odds with the actions of the CFPB as well as the capabilities of banks and credit unions. Since its inception the CFPB has all but declared war on payday and title loan companies, the two entities that do the most lending to people with poor or nonexistent credit. The CFPB resents them because the loans are costly and in their view potentially exploitative: a typical loan would be for three or four weeks and amount to $400, with $500 to be repaid at the end of the term. A 25% interest rates for a loan of less than a month amounts to an astronomical annual percentage rate and the CFPB and Department of Justice have deemed it to be needlessly excessive. They have made a concerted effort to make it difficult or impossible for these businesses to survive via something called “Operation Choke Point. ” For instance, it is now much more difficult for these businesses to get bank accounts. The retrenchment of the industry has created a lacuna: despite fervent wishes to the contrary by the CFPB, many low-income workers find themselves in need of credit, and it’s unclear what will fill this niche. What is ab...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs