The War on Payday Loans Begins to Look Like the War on Drugs
President Nixon fired the first shot in the failed war on drugs when he declared it “public enemy number one.” Supposedly, the reason for stepping up arrests and prosecution of traffickers and users was to change people’s drug habits, but the lesson of nearly 50 years, according to an article in the Economist.com, is that you can’t legislate bad habits. Echoes of the same failed policies are evident in the United States with its new “war” on the payday loan industry. The only difference is that payday lenders are acting legally and providing an essential service, but that doesn’t seem to trouble the Consumer Financial Protection Bureau or CFPB, which is spearheading this new battle using the same failed approach. The CFPB, using unprecedented and unchecked authority, simply issues regulations that turn legal actions into illegal business practices.
Opening Moves in the War on Payday Loans
The first salvo in the war on short-term lending comes from the CFPB, which issued a proposal that would make it mandatory for lenders to investigate borrowers in a “full-payment” test that determines whether each borrower earns enough to repay the payday loan in full while still meeting his or her family’s basic living expenses. New regulations would also prohibit lenders from using auto titles as collateral. The Community Financial Services Association of America, an organization that advocates on behalf of the payday loan industry, quickly fired back that the proposals would ultimately hurt consumers by forcing borrowers to turn to loan sharks or petty crimes. The echoes of the War on Drugs are startling. Both “wars” involve political motivations and machinations. Both target users for their own good by trying to control personal behavior. Both wars could easily ruin lives for relatively small infractions, and neither war is supported by the people whom each battle affects.
The Drug War Ruined Many Lives Needlessly
The drug war prosecuted users for their bad habits and ruined many lives and careers in the futile effort to control behavior. Criminalizing drugs and prosecuting users turned many drug-experimenting college students into career criminals and compromised their bright futures. A Nixon aide, according to the HuffingtonPost.com, admitted that Nixon lied about his reasons for the drug war and that the real reason for declaring the “War on Drugs” was to jail black political activists and so-called “agitators.” Political motives also motivate the war against payday lenders. The reasons that the industry has been targeted include:
- Liberal consumer activists gain influence and win elections by “helping” low-income people who don’t want or need the help because they overwhelmingly support the payday loans that provide them with a source of credit for dealing with financial emergencies.
- Banks and establishment-type lenders are losing substantial loan business to these private payday loan companies that have opened offices in every neighborhood, town and city where payday lending isn’t already banned.
- Traditional lenders lose late fees and penalties when people can borrow cash to pay their bills before the due dates.
- The Democratic Party is tied to left-leaning consumer initiatives, which forces many politicians to go along with the top party leadership that includes President Obama, presumptive Democratic presidential nominee Hillary Clinton and activist Elizabeth Warren who was one of the most outspoken legislators to encourage targeting the payday industry.
President Obama responded to the drug war’s excesses over the last half-century by reducing sentences for prisoners and declaring the opioid crisis a public health issue instead of a criminal problem. Unfortunately, Obama has moved too far in the other direction by trying to criminalize payday loans because many black families turn to these lenders in emergencies. Using the same logic for reducing drug-related prison sentences, however, it’s clear that families who get caught in cycles of debt need financial resources, higher incomes, better educations and training in money management instead of eliminating their only source of emergency cash. Some people do get trapped in addictive cycles of debt, but providing real help for people who engage in questionable behavior involves treating the person’s underlying conditions that promote addiction to drugs or borrowing instead of criminalizing the objects of addictive behavior.
Google Joins the Battle by Pledging Allegiance to the CFPB
Google recently took a “bold” stance and allied itself firmly with the establishment in its war on payday lenders. The company decided to stop selling advertising to payday lenders as of July 13, 2016. Borrowers can still find payday loan companies through organic keyword searches, but lenders can no longer buy pay-per-click ads through the company’s income-generating Google AdWords feature. Google earns billions of dollars from traditional lenders, and low-income families don’t spend a lot on paid digital advertising, so Google doesn’t have nearly as much to lose as it would by incurring the wrath of the business establishment. Google regularly claims to change its policies to keep current with user trends, but payday loan customers support the industry. Viewed in that light, Google’s stance doesn’t appear quite so bold and might even be considered self-serving and cowardly.
Martial Law in Times of War Makes Allies out of Former Enemies
Other companies and industries have been caught flagrantly breaking the law, and banks routinely engage in unethical practices such as charging multiple fees for returned checks that are presented several times for payment. These transactions cost almost nothing to process electronically. Bank excesses caused people to lose billions of dollars during the mortgage crisis, but all is apparently forgiven when these companies lend their political support to prosecuting the war on payday loans. That’s at least true until the CFPB sets its sights on other industries that it wants to control.Reuters.com reports that the CFPB has already drawn criticism for making unilateral decisions in its war on payday loans and that presumptive 2016 presidential nominee Donald Trump opposes the agency’s authority and vows to curb its mandate. You can get the latest information about the “war” on payday loans by visiting us at the PersonalMoneyStore.com.