Tuesday, December 28, 2010

On the evility of payday loans

The CARD Act (bill; NYT summary) is a failure, argues John Stossel in "Please Stop Helping Us". Quote,

Since the Card Act passed, mortgage and Treasury bill rates have dropped a little, but credit card interest went up -- from 13 percent to nearly 15 percent. Some banks also stopped offering credit to some people. JPMorgan Chase cut off 15 percent of its customers.

So the real result of this "consumer" regulation? "Hundreds of thousands of people can't get cards who used to be able to have cards, and all the rest of us now have to pay more," [GMU law prof] Zywicki said.

Stossel's screed continues his familiar anti-regulation stumping, but it's worth reading.
Stossel illustrates how the CARD Act made credit cards more expensive, or simply inaccessible.

When messing around with Prosper.com, I saw the truly devastating effects of payday loans on the poor. Talk about evil. 400% interest or worse. You think credit card collections agencies are rough? They pale in comparison to your local, legalized loan shark, who probably lives in or near your own neighborhood.

The CARD Act wound up pushing many "marginal" borrowers into the arms of payday loan sellers, and probably an illegal loan shark or two. Was the CARD Act worth that, on top of the US-wide credit card interest rate increase?

Reminds me of cash-for-clunkers (C4C), which, perversely, disproportionately hurt the poor. Junking all those old cars made environmentalists happy, while failing to make a measureable impact on emissions. C4C transferred a lot of your tax dollars to the local car dealership barons and the Big Six automakers. But it also removed cars from the used-car market that lower-income folks were more likely to buy — thus making lower end used cars on average more expensive.

P.S. Is "evility" a word? If not, it should be.

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