Liberal economist and health care advisor Jonathan Gruber was forced to testify before a House committee months ago to explain and apologize for his now infamous comments about the ???stupidity of the American voter.???
While Gruber was scolded by members of both parties for callously dismissing the actions of millions of Americans, his comments represent a feeling all too common among the Beltway establishment. They will not admit it, but they really believe that voters are dumb and consumers need government to protect them from themselves.
A new program from the Obama Administration operates under the same idea as Gruber, and I bet you haven???t even heard about it???until now.
Operation Choke point is an Obama Administration Justice Department program created in 2013 to intimidate banks into not loaning money to businesses that they simply do not like. This means that gun shop owners, tobacco retailers, and other companies like this are going to be feeling the stranglehold of government.
Already, they have used the program to block credit being issued to small business owners and have put gun dealers out of business. They have targeted companies that sell fireworks. They targeted online gaming companies. They went after tobacco sellers and dating services. They have even targeted loan companies if they don???t favor the rates and the recipients, such as ???payday??? loan companies.
Federal officials are operating under the paternalistic premise that millions of consumers who use short-term credit ??? and payday loans, in particular ??? are simply irrational, and that government must therefore ???nudge??? them toward ???better??? choices. Which essentially means that they???re acting as an overbearing father.
A House Oversight Committee investigation has revealed that officials running the program are motivated by personal ideology. In fact, one senior bank examiner wrote to another FDIC official, ???I literally cannot stand pay day (sic) lending??? and that such lenders ???do not deserve to be in any way associated with banking.???
Consumer Financial Protection Bureau (CFPB) Director Richard Cordray testified that the ???very sophisticated??? members of the House Financial Services Committee should ???think about [their] mothers and fathers, sisters and brothers, sons and daughters??? and how to ???protect??? them from small dollar loans.
And while these regulators try to limit private enterprise, others are busy creating taxpayer backed alternatives to fill the gap. The United States Postal Service Office of the Inspector General (USPS OIG) recommended earlier this year that the agency offer financial services, effectively wanting to create a government run payday loan company
Which they???ve already vilified, yet they want to set up their own payday loans? Makes no sense.
In an attempt to force people into behaving as they want, regulators are increasingly pushing short-term credit out of reach for millions of consumers. The champions of such over-regulation will not admit this, just as they will not admit that short-term credit plays an important role in our economy.
Advocates of the Choke Point program claim that if products like payday loans are eliminated, consumers will simply save more and spend less. Which anyone who has taken economics 101, will tell you is flat-out wrong.
Increased savings and more borrowing options are noble goals. But they will not be achieved by taking away popular and practical financial management tools.
Such thinking on the part of bureaucrats and activists ignores reality for the 76% of Americans who live paycheck to paycheck, with little in the way of savings and who need reliable credit, not scolding or hypothetical solutions, or worse, another government program.
When these hard-working Americans face an unexpected financial shortfall, millions make the perfectly rational decision to use short-term loans to help cover costs associated with all of life???s last minute disasters such as a car breaking down, emergency repairs, etc.
Columbia Professor Ronald Mann wrote, while these products are not inexpensive, the decision to use them is rational because the costs of borrowing are ???dwarfed by the opportunity costs of what they would lose if they did not borrow.???
Sounds logical right?
Well, despite this rationality, federal regulators proclaimed that for those borrowing short-term loans from banks ??? called deposit advances ??? financial challenges can only last a single pay period; these punitive regulations have resulted in banks discontinuing the service. Similarly, the CFPB has signaled a desire to implement additional rules governing state-regulated payday loans. How does this help consumers struggling to make ends meet? It doesn???t.
Restricting access to short-term loans will not alleviate the urgent financial challenges facing many who struggle to keep the lights on and to pay the bills. I just wish their energy would be put to better use, like growing the economy, instead of a bullish government.
