OPINION:
Watch out — liberals in the Obama administration are racing down the well-paved road of good intentions.
When the history of the administration is written, an entire chapter will be dedicated to the rampant and consistent use of crony capitalism to help their contributors and supporters. While efforts to assist hedge funds and investors in green energy have been well documented, what is often overlooked is how badly the impact of these same regulations have crushed the rest of us across America. These are examples of bad intentions masked as good intentions.
One of the most obvious is the Obama administration’s gargantuan effort to “protect us” from the evils of success and money. The Dodd-Frank Act was mischaracterized as an effort to regulate Wall Street and big banks. Sen. Elizabeth Warren and her cronies at the Consumer Financial Protection Bureau (CFPB) created a blizzard of new paperwork, burying us all with confusing and duplicative regulations. Each of these forms, rules and restrictions is intent on protecting Americans from ourselves and the evils of the access to capital — whether for mortgages, entrepreneurs or simply paying unexpected bills. This is an example of good intentions but a not-so-good outcome.
While large businesses have personnel dedicated to filing government paperwork, these new regulations have only increased the burden on the rest of us. The CFPB’s good intentions have put the dream of homeownership out of reach for many Americans. The CFPB’s welter of duplicative reports have led to an unprecedented consolidation of community banks and now, the unchecked bureaucrats of the CFPB have their sights set on low-dollar lenders. Recently, the CFPB issued an avalanche of rules and regulations, which simply seek to destroy the small-dollar lending industry in one fell swoop. This is an example of good intentions that are hurting the people the regulation is attempting to help.
Mrs. Warren and her buddies in the Obama White House don’t understand the reality of living in America. They seem to miss the fact that there are millions of Americans who don’t have a credit score. These “unbanked” Americans cannot get a credit card and — with the stacks of new CFPB paperwork — none could ever actually qualify for a loan from a big bank. Yet they are in need of credit. Those willing to serve the community are the short-term lenders, often called “payday lenders,” who given the working poor and middle class the credit they often need.
The Consumer Financial Protection Bureau, the unrestrained bureaucracy created by the Dodd-Frank Act, has released proposed regulation to cap short-term interest rates — and done so in a manner designed by their own admission to put up to 80 percent of all short-term lenders out of business.
Liberals cannot seem to understand, intentionally or otherwise, the math associated with short-term lending. John Berlau of the Competitive Enterprise Institute has explained that a $16 surcharge on a $100 loan is no more predatory than a $16 resort fee on a $100 hotel room. Yet Mr. Berlau notes that the CFPB is outraged because that $16 fee when annualized for a year is high. The bureaucrats cannot comprehend that these loans are designed for one- or two-week periods. Perhaps the CFPB would best be served by hiring less cronies of Mrs. Warren and instead hire more economists who understand risk, balance equations and the economic impact of new regulations.
When a legal, taxpaying small business lends someone from your neighborhood $100 and is paid back $120 in two weeks, it does not make them a loan shark. However, if there is no legal short-term lender available, Americans will still need money. If these unbanked Americans are unable to qualify for a standard loan available through a commercial bank, how do the bureaucrats at the CFPB imagine that these borrowers will be able to satisfy these same requirements through a short-term lender?
Congress must act swiftly. Hearings before the House Financial Services Committee and the Senate Banking Committee must call into question the unrestrained social molding being undertaken by the CFPB. The Obama administration’s own FDIC reported there were approximately 68 million unbanked Americans in 2013.
Sweeping problems under the rug doesn’t make them go away. Congress must not simply allow Mrs. Warren and her flunkies at the CFPB to crush an entire legal industry and simultaneously force these millions of Americans back to the financial black market of true loan sharks. Sometimes good intentions are not good enough.
• Daniel Horowitz is an independent consultant who has served on staff in the U.S. House and Senate and as a presidential appointee in charge of policy at the U.S. Small Business Administration.
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