Democrats and Obama crush financial options for low-income families

In November, I wrote about how the payday loan industry is being regulated out of business as government know-it-alls determined they were bad for consumers. Regulating the industry took an option away from consumers in need, but as it turns out, the Dodd-Frank credit card reform legislation – effecting more traditional financial institutions – makes it even worse for those who need a few dollars.

The November post discussed the morality issue along with the traditional conservative verses liberal view point of payday loans. States around the country were making it impossible for these companies to make a profit. Low-income families who needed a few hundred dollars for a couple of weeks were out of luck.

Sure, the interest rates seem extreme, but when providing short term loans – generally one to three weeks – the fees needed to be higher since the costs were higher. The industry in general made a profit margin of about 10 percent, not at all unreasonable. The issue is media reports keep referencing the yearly interest rates for these loans instead of concentrating on the short term aspect of this financial option.

So, with payday businesses leaving the market, the option for those who need short-term funds is limited. The obvious choice is to use a credit card which can provide a short window at an interest rate that is considered ‘more reasonable’ by the know-it-alls.

There are problems of course. Because of the financial regulations effective this week – the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act sponsored by retiring Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D- Mass.), and signed by President Obama – consumers will soon experience higher interest rates on all cards, fewer credit cards being made available to low-income earners, and lower credit limits on the cards they do issue.

From The Wall Street Journal.

[I]n the wake of new federal limits on how credit-card issuers can price risk and adjust interest rates, more Americans had to go to payday lenders, pawn shops and local loan sharks in order to get credit. It’s simply the latest installment in the old story of regulators thinking they can wish away the unintended consequences of consumer credit regulation.

But as noted back in November, the government is regulating payday operations out of business across the country.

Put the regulation on payday lenders together with the CARD Act and we’ve got low-income earners heading to pawn shops and loan sharks for short term loans. Of course the government congress-critters and bureaucrats specifically introduced these additional regulatory steps to help solve a problem for consumers … and all they have done is made it worse.

Great job.

Update: I should have noted the author of the opinion piece in the WSJ, Todd Zywicki also writes for our favorite legal blog, Volokh Conspiracy.

5 replies
  1. winnie888
    winnie888 says:

    What has happened to this country over the past two years makes the hair on the back of my neck stand up.  This is a very, very dangerous road we're headed down and it all equates to our freedoms and choices being regulated (or flat-out taken away) by this government that's supposed to be "of the people and for the people".

  2. Dimsdale
    Dimsdale says:

    The primary objective of the "party of the little guy" is to keep the little guy little.  And dependent on the party of the little guy.


    Winnie is right: it is a very, very dangerous road we are heading down, but despite the warnings of history and present day Europe, it is a road that has been trodden before, and is festooned with warning signs.


    Here is one attributed to Karl Marx: History repeats itself, first as tragedy, second as farce.  Carter and Øbama?  😉

  3. Lynn
    Lynn says:

    WOW, what an education. I knew if the Credit card bill was sponsored by Dodd and Franks, it had to be bad. I knew some of the reasons, but this is just plain unforgivable. Comments above are spot on. Keep the downtrodden down and they will be grateful for every crumb. Convinced they are unable to earn their own.

  4. joe_m
    joe_m says:

    Small loans and cash, you cannot easily track cash. The government wants to eliminate cash as a medium for trade. Just another small step towards total control. They really want all "their" money.

    When money goes away, all transactions can be tracked. It will be argued that it will make it more difficult for illegal drug transactions and the "terrorist" but in the end it will be them telling us what we are allowed to spend and on what.

  5. PatRiot
    PatRiot says:

    This is no defferent than Freddie Mac, Sallie Mae, yada, yada – all designed to fail.  And when they do, the Feds will claim " the system is broken"  and introduce a Gov't program of their own. 

    At the same time, the Republic is being systematically swapped out for Gov't controlled, unAmerican, unconstitutional programs. 

    Economic imprisonment for starters.  

    All because these fool are addicted to spending.  The suppliers (the banks) are in control right now and the American taxpayer is the victim.

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