Bulldozing the lending village to save it

Op-ed views and opinions expressed are solely those of the author.

Before I became a minister, I remember something my youth pastor used to say, “For God so loved the world he didn’t send a government agency.”

Too bad my youth pastor never explained this to Washington policymakers. They believe government agencies and new regulations are the key to solving all problems facing America. Here’s the latest: some in Washington are looking at ways to restrict online companies from offering unsecured short-term loans of say $1000 to $5000 to American households.

Online lending – a relatively new phenomenon – is one of the fastest growing parts of the financial market in the U.S. and is expected to reach more than $100 billion in loan valuations by the end of this year. Why? Because consumers embrace the convenience, privacy, and safety of online lending.

There are plenty of advantages offered by online lenders. The application process is very simple and straightforward. Often there’s no need to even talk to a loan officer – which borrowers sometimes find intimidating. No security or collateral is required and perhaps most attractive of all, loans can be offered to almost any borrower because the online lenders have set up fully automated and state of the art loan risk assessment tools that not only eliminate red-lining, but also enable these companies to offer the best possible lending package to any applicant.

That’s not good enough for the progressives. They want sharp limits on this burgeoning industry to “save” borrowers from exploitation by imposing either a rate cap or a ban on providing their services to people with low incomes.

If we’re not careful, the “loan saviors” will completely disrupt the ability of Americans to have access to this innovative lending option – especially for minority and working-class households. The regulatory approach fails on many fronts. It ignores economic reality; a family’s emergency needs and even the ability of adults to make financial decisions in their own interest.

In the end a regulation or ban will punish households – not help them – by forcing them into a Sophie’s choice of pawnshops, loan sharks or worse – skipping rent payments and/or foregoing payment of the electric bill. Washington assumes that families are using these loans to buy a fancy 4k Blu-ray player or a new iPhone 12.

What these policy makers don’t realize is that when the brakes go out or the pipes burst, you need to take care of the problem immediately. Niceties like taking money out of your retirement or home down-payment fund aren’t serious options for working class families. If the online lending option is taken away, the working class – disproportionately minority – is stuck between a rock and a hard place.

You see, if you’re struggling to make ends meet, the left plans to bulldoze down your village in order to save you – in this case from the “predatory” lenders. Mind you, they have no plan for actually fixing your leak or getting your car repaired; not even a plan for creating an economic environment so that you can have access to the very credit cards that they take for granted.

Study after study has shown that interest rate caps are inherently discriminatory against those racial and economic groups who struggle the most with access to credit. And banning the option of online lenders will just slam the financial door on these households altogether. But undaunted, Washington policymakers suffer from a fatal conceit, they know more about you and your family’s needs than you do. They say you should just use cash.

Mind you, these same progressives (who are often in upper income households) regularly use short term lending to facilitate their household’s needs – except they call it credit card use and they often brag that they’re getting points when asked why they don’t simply pay cash. The truth is that 70% of the United States population has a credit card, with just over a third carrying 3 or more cards.

But what about Americans who aren’t eligible for credit cards either because of their income level or credit risk? Why limit their ability to get an unsecured loan?  Taking options away from the working poor is cruel and unfair.

Progressives would be well served to promote public service announcements on the risks of debt or even going into working class communities to offer training on debt management. While a rate cap or a broader ban might make the progressives feel good, it won’t “save” anyone.

The Right-Reverend Council Nedd is Archbishop of the Episcopal Missionary Church.


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