I've got two quotations I'd like you to consider, one from someone you know, and one from someone you probably don't. The first is from Ronald Reagan:
The nine most terrifying words in the English language are 'I'm from the government, and I'm here to help.'
The second remark is from Trudy Robideau. It describes her experience with so-called payday loans, i.e., short-term, high-interest loans designed to help people with a financial emergency who are between paychecks. Ms. Robideau needed to repair her car and borrowed $800. When it came due, she paid a fee to extend the due date. Eventually, she ended up taking out a new loan to pay back the old one, beginning a vicious cycle similar to the one that has ruined countless lives while this industry has almost quadrupled in size (not counting for inflation) since 2001. Here's Ms. Robideau:
Ka-ching. You're hooked. You can feel the hook right in your mouth. And you don't know it at the time, but it gets deeper and deeper.
The remark from President Reagan perfectly encapsulates contemporary Republicanism, both in form and content. It's simplistic, ideological, and emotional. One other thing: it's completely divorced from the reality of any specific person's life. A person like Trudy Robideau.
The new proposed rules -- the first draft of what will hopefully become regulation -- from the Consumer Financial Protection Bureau (CFPB) cover traditional payday loans and loans in which people put their car up as collateral for a short-term loan, as well as some kinds of installment loans whose term runs more than 45 days. The proposals would mandate that lenders actually look at the obligations and incomes of would-be borrowers similar to the way they do with mortgages and other kinds of loans, so that people who are unlikely to be able to repay their debts don't end up in a situation like Trudy Robideau. The CFPB looked at 15 million short-term loans and reported that fewer than one in five were paid off on time. Clearly, this is an industry where taking advantage of financially vulnerable people is standard practice.
Here's another doozy: when a borrower doesn't pay on time, lenders can currently just take what they are owed right out of the person's bank account, often leading to bounced checks and additional charges that leave the borrower even worse off. No more, if these proposals are adopted, as lenders would have to notify the borrower three days before taking funds out of an account. As for these loans being used to cover one-time expenses -- which is how the industry pitches their product -- almost seven in 10 borrowers used the money to cover recurring bills while only one in six borrowed for true, one-time emergencies, according to the Pew Charitable Trust.
The initial response from the payday loan industry was just what you'd expect, criticizing the proposals for limiting the "choices" and "options" of consumers. I know most of you cherish preserving your option to be ripped off, and I'm sure corporations love having the option to do so. It really is about liberty, after all. Consumer advocates, on the other hand, are rightfully pushing for the CFPB proposals to be made tougher. Nevertheless, we know the industry's lobbyists will work the refs and try and weaken the proposals. But as the net neutrality debate showed, the public can also have an influence on regulators if people speak up.
Reining in the payday loan industry has been in the works over at the CFPB for a while now, and it's not a moment too soon. John Oliver offered a brilliant critique of the industry last summer, and I had something to say on it as well after prosecutors finally caught up with some lenders who had been violating New York State law.
Until now, 32 states had little to no effective cap on the interest rate a lender could charge. In other words, they allowed usury. It's worth noting that the political system in many of these states is dominated by Christian conservatives, despite the biblical prohibition of usury. National regulations should do more to curb abuses, although legislation would make these consumer protections even more secure.
Why isn't there national regulation? Because of the same people who loved Obamacare until it was proposed by Barack Obama. In other words: Republicans. According to them, government supposedly is the problem. They say things like that because it sounds a lot better for them than the reality. The reality is that Republicans oppose regulations because they seek to stop the corporations and wealthy interests that bankroll Republican campaigns from lying to Americans by selling something different from or inferior to what they advertise, or by distorting the market to drive out competitors (which not only hurts honest businesspeople who can't compete but also cheats consumers out of the benefits of having more choices when they shop), or by damaging the environment, or any number of other things that those without scruples will do to maximize profits.
From Barry Goldwater to Ronald Reagan to Mitt Romney, conservatives have tried to convince the American people that government is bad because a vibrant, effective government is the enemy of those who cheat and exploit. Liberals welcome a healthy, substantive debate over whether a given problem can be solved through regulation, and which measures might work better than others. Such a debate serves the public good by coming up with sound ideas that can be tested, evaluated, changed and even abandoned if that's what the evidence demonstrates makes the most sense.
Republicans, however, want to poison the debate by claiming that regulations kill jobs, or diminish freedom, or, I don't know, make rainbow unicorns smile less brightly. Oh, and when their predictions prove false, do they change course? Do they admit they may have been wrong? Was that really Ronald Reagan's natural hair color?
Of course government can make mistakes. But so can private industry. Do you know why? Because both consist of human beings. We aren't perfect. What's also clear about us humans, about human nature, is that we are competitive. We want to win. Some of us -- not many, I'd argue, but enough to potentially ruin things for everyone else -- want to win so badly that they will do just about anything they can get away with in their pursuit of victory. For such people, it's not really about providing for their family, it's about crushing their enemies -- and anyone who gets hurt along the way is but collateral damage.
The payday loan proposals we are discussing come out of an agency established by the Dodd-Frank law that sought to regulate the financial industry after the crisis of 2008. Republicans have hated the Consumer Financial Protection Bureau (and Dodd-Frank in general) since it was born. They sought to prevent it from ever even functioning, and, as Elizabeth Warren noted, their current budget makes clear they still want to defang it, "to make sure the watchdogs are tame." Imagine that. Republicans don't want to protect consumers against interest rates that can go, according to current law in many states, north of 400 percent. They say it's about freedom and personal responsibility, and complain that government should just get out of the way. They have to say that, because that's what's in the interests of the elites who back them. Liberals have a different message.
As President Obama said Thursday in regard to these new CFPB proposals:
As Americans, we don't mind seeing folks make a profit... But if you're making that profit by trapping hardworking Americans into a vicious cycle of debt, you got to find a new business model. You got to find a new way of doing business.
Liberals recognize reality, the reality that good people sometimes find themselves in a desperate situation, and that desperate people sometimes make bad choices. Liberals believe it is immoral to take advantage of another person's desperation to excessively line one's own pockets.
Although some people are willing to do so, liberals believe that our country cannot permit such behavior. Those are the beliefs and the values that underlay the regulations liberals support and against which Republicans rail by talking about faceless bureaucrats. We liberals have to fight back by highlighting the faces and stories of real people like Trudy Robideau.