By Bill Britt
Alabama Political Reporter
President Reagan once ominously remarked, “The nine most dangerous words in the English language are, “I’m from the government and I’m here to help.”
Rep. Bob Fincher (R-Woodland) is sponsoring a Constitutional Amendment in the House that would cap “certain” loans at 36 percent interest, which reads in part, “No person should be subject to unconscionable interest rates authorized by government regulation. No church, charity, or community foundation should bear the burden of providing financial assistance because government-approved loan products are proven to be exploitive.”
Laboring under the pangs of idealism rather than data-driven evidence some have reasoned that it is a religious mission to protect these borrowers from themselves.
“Except for the ten to twelve million people who use them [payday lenders] every year, just about everybody hates payday loans,” states Robert DeYoung, the Capitol Federal Distinguished Professor in Financial Institutions and Markets at the University of Kansas School of Business. DeYoung says, “Detractors include many law professors, consumer advocates, members of the clergy, journalists, policymakers, and even the President [Obama]! But is all the enmity justified?” DeYoung says, “No.”
DeYoung, along with Ronald J. Mann, the Albert E. Cinelli Enterprise Professor of Law at Columbia University, Donald P. Morgan, assistant vice president of the Federal Reserve Bank of New York’s Research and Statistics Group, and Michael R. Strain the Deputy Director of Economic Policy Studies and a resident scholar at the American Enterprise Institute writings at the Federal Reserve Bank of New York, cast doubt on the wisdom being employed by these Republican legislators.
As for the proposed 36 percent cap, these economists and scholars found, “If payday lenders earn normal profits when they charge $15 per $100 per two weeks as the evidence suggests, they must surely lose money at $1.38 per $100 (equivalent to a 36 percent APR).”
Quoting from The Pew Charitable Trusts (p. 20) notes that storefront payday lenders “are not found” in states with a 36 percent cap.
They also reference studies that say “a 36 percent cap as an outright ban.” In their view, “’36 percenters’ may want to reconsider their position, unless, of course, their goal is to eliminate payday loans altogether.”
In the Senate, Republican Arthur Orr wants to help lower income families, single mothers, and minorities escape what is claimed to be usury in the form of payday, check cashing, and other small lenders by sponsoring Legislation that would cap all lending at 36 percent. (That’s all lending)
Orr doesn’t express any religious reference for his bill but has made common-clause with advocacy groups including the Southern Poverty Law Center, Alabama Arise and other progressive to end small lending.
Star Parker, founder and president of the Center for Urban Renewal and Education, (CURE) a public policy think tank that promotes market-based solutions to fight poverty, also feels it’s a warning when government wants to lend a hand.
Parker, is African-American, a woman, a Republican, and has suffered most of the ills that accompany a life of Welfare dependency. Parker says when the Consumer Financial Protection Bureau (CFPB) website welcomes visitors with the slogan, “We’re on your side,” that’s a warning too.
The CURE board is comprised of such conservative luminaries as, Generals John Ashcroft, Ed Meese, and HUD Secretary Dr. Ben Carson.
In one of her syndicated columns, Parker looks at the effects of the Obama era Dodd-Frank Act, passed in 2010 in response to the financial crisis of 2007-08. She notes that, under the Dodd-Frank Act, “The ten largest bank loans to Blacks dropped from 8 percent in 2007 to 5 percent in 2014. The percentage of total loans to Hispanics dropped from 11 percent in 2007 to 7 percent in 2014.” Citing a Pew Charitable Trust study she reports if payday loans were not available, “81 percent of borrowers say they would cut back on expenses. Many also would delay on paying some bills, rely on friends and family, or sell personal possessions.”
Parker feels Reagan’s admonition applies to those who want to help minorities by capping small borrowing.
Much of the new lending regulations are being driven by paid political operatives, registered and unregistered, having planted a false flag claiming the backing of the Alabama Federation of Republican Women citing old resolutions and outdated press reports.
The question they don’t answer is, where will these borrowers turn when they can’t pay their power bill, car insurance, or buy groceries at the end of the month?