Monday, March 11, 2019

Who Wants a Fight With No Referee?

Since we need to have a fresh injustice each day, the Trump administration is rolling back protections on the payday loan industry, because of course they are.

I don't know why I am still and continually surprised by this administration, but I am.

Why wouldn't they take a look at a situation that has the low-earning, underbanked on one side, and a well-financed predatory lending industry on the other and decide, "You know what? I think we need to take the kid gloves off these lenders. Let's see what the unfettered free market does when they don't have to consider whether borrowers can actually repay loans at 400% interest. The financial crisis was ages ago, anyway."

The good people at MSNBC have a video that explains the situation in an excellent segment titled "Money, Power, Politics".

For a deeper dive, check out this NYT piece that outlines how the one federal agency tasked with protecting consumers has instead put the interests of payday lenders first.

What did the Trump administration find so objectionable? That the Consumer Financial Protection Bureau, after five years of analysis under the Obama administration, was planning to require payday lenders to actually underwrite most loans: to do some work to ensure the borrower could, you know, repay the loan.

Imagine that.

These protections were designed to help vulnerable people. Low earners (the average borrower makes $30,000 a year). Young workers, as over 10 million millennials have taken a payday loan in the last two years aloneThe underbanked. People who often have no other place to turn to when they are in a pinch.

While the industry would like to paint these loans as single, short term fixes that help an under-served community, the reality is that "[h]alf of all payday loans are part of a sequence that stretches at least 10 consecutive loans." 

Rather than seeing these loans as helpful, one-time options for people in a bind, perhaps we should see them as a financial trap: one set up to keep poor borrowers forever caught in a series of preposterously high interest loans that effectively become long-term debt financed at 300% or 400% interest.

And this is no cottage industry. As Stephanie Rhule notes, there are over 23,000 payday lenders in the United States: nearly double the number of McDonald's restaurants.

So, who is the sort of person who thinks it's a good idea to take the handcuffs off of a predatory industry, just to set them loose on our country's most vulnerable citizens?

When looking at an individual worker going against a humongous industry, what kind of person wants the gloves taken off, just so he can see what happens when David tries to defend himself against twenty-three thousand Goliaths, without some damn referee getting in the way?

Who on earth wants to see that sort of economic beat down?

Well, libertarians do.

But on a more personal level, what is this person like? Who gets off on watching a lopsided, financial thrashing of America's poor?

It's the kind of person who is so secure, so sure that he is going to win in a no-holds-barred competition, that in an economic sense, he doesn't fear anything. Winners want this sort of system, or at least the people who have so little humility or self-awareness that they consider themselves winners. 

The sort of people who have the skills, background, education, gender, or skin color to know that in an American-style, dog eat dog fight, they're going to be just fine. They have nothing to worry about.

Since the victor takes the spoils in a winner-take-all economic system, the last thing this sort of person wants is some intermediary standing in the way, or some government trimming their slice of the pie.

Sure, government regulation might protect a few million poor people from soul-crushing debt. But they might also result in slightly higher borrowing costs or, gasp, reduced returns for investors. Why shouldn't individual consumers and lenders be able to come to whatever terms they like?

And more importantly, why should the government be able to put any restrictions whatsoever on the rate of interest a business wants to lend at?

Won't someone please think of the wealthy libertarian's hypothetical opportunity costs?

I have a pet theory about why so many tech bros and other dorky high earners just happen to become libertarians. These former nerds might have been on the wrong side of fights in high school, sure. But in today's world, where there is unprecedented inequality and the winners take home more than they have in any time past, now they're the ones who can walk the office halls without any worry of being bullied.

Not by companies, not by other workers, not by recessions, not by anyone. With a little luck, they can be the bullies for a change.

Financially speaking, these nerds have a chance to get their revenge.

But just because these dudes are finally winning for a change, that doesn't mean we need to see millions of poor people lose.

P.S. - If you have thoughts you'd like to share with the Consumer Financial Protections Bureau on these regulatory changes, Kathy Kraninger just happens to be on Twitter, @CFPBDirector.

Slightly less trolly means of communication can be found below:



Main Address:

PO Box 2900
ClintonIA 52733-2900


Toll Free:

1-855-411-CFPB (1-855-411-2372)


1-855-729-CFPB (1-855-729-2372)

*Photo is from MartialArtsNomad at Flickr Creative Commons.


  1. That's too bad about the predatory payday loan industry. They could still make a great profit even with less interest. Government oversight is needed here.

    1. Agreed, Joe. The shame is that we nearly had it. All the current administration had to do was...nothing.

  2. Yikes. I had missed that proposed change. If anything, we need to go in the OPPOSITE direction. The fact that loans can be had at the current levels are insane. I can’t even wrap my head around something with a 100%+ interest rate.

    1. Right?

      I suppose I can't blame a shitty, amoral industry for trying to pull whatever it can get away with. I'm a little shocked at how quickly and easily the CFPB rolled over for the industry they're supposed to regulate.

  3. This is absolutely disgusting. The horribly ironic thing with libertarians is there is no such thing as the free market, as governments give into demands from lobbyists and those with power all the time. The ideology is massively flawed from the offset.

    It is clear to me that a balance between free(ish) market forces and sensible regulations is the best way to run a country and economy. Shame that a large percentage of our leaders can't see that

    We've cut down on pay day lenders powers Over the years in the UK and one of the biggest ones, Wonga, went out of business. Just goes to show the business model is unsustainable if they can only survive with 500%+ interest rates!

    1. Hi there, FIREstarter!

      Yes, the 'free' market hasn't been that way in a very long time or, as you noted, maybe we never even had it. Governments actually serve quite an important role in making sure there is competition in a free market anyway. It's certainly not this natural thing that libertarians imagine.

      And yes, I completely agree with the balance you're striking there. Markets are our best solution, but are really flawed and broken in certain circumstances (monopolies, oligopolies, market failures of all sorts) and simply won't be able to do certain important things (roads, plumbing, utilities, internet, a variety of other public goods/infrastructures) and are plain bad at others (public libraries>private libraries) . Government needs to step in all the time.

      We tried to outlaw payday lenders in our state and they just switched to being 'auto title lenders'. Whack a mole over here. I wish we had your system a lot of the time. Maybe we'll just move. ;)

  4. This guy did a series of posts on free markets etc... I found them really enlightening:

  5. This comment has been removed by a blog administrator.

  6. This comment has been removed by a blog administrator.