“The U.S. Department of Justice (DOJ) has filed a series of criminal charges against short-term lending companies, accusing the unrelated firms of violating the Racketeer Influenced Corrupt Organization (RICO) Act, a federal law passed with the intention of combating organized crime.” It says lenders have falsely claimed affiliation with American Indian tribal governments so as to evade regulation. [Ben Johnson, Heartland]
The forces of consumer financial regulation led by Sen. Elizabeth Warren have made it clear that they would like to ban “payday” lending (short-term, at high interest rates or fees). Yet history teaches that such lending — like gambling, late-night alcohol, and many other disapproved activities — is in such steady demand that short of government supervision of a population more intense than anything in living memory, the real choice is whether to tolerate an aboveboard legal market or to drive it into informal and sometimes illegal channels. In the latter circumstance, consumer remedies against bad actors may be non-existent, and extra-legal status and the absence of advertising may make it hard for borrowers to compare possible sources of loans. As for enforcement methods following non-payment of debt: “Driving [businesses] underground will very often make it worse,” Olson said. “It will mean outright violence, at worst, or extralegal sanctions for those who aren’t paying their debt. You might find you like extralegal sanctions less than you like things they can currently do, like ruining your credit rating.” More: Eric Boehm.
4 Comments
I find it amusing that Elizabeth Warren is investigating them for falsely claiming affiliation with an American Indian tribe
Why shouldn’t she? It’s an area of expertise.
There would be less demand for exorbitant recycling payday debt, if hand-to-mouth consumers were encouraged to put aside small savings out of reach of importunate relatives and roommates. When I was a kid around 1960, it was possible to set up an interest-paying, no-fee passbook savings account with just a few dollars. The Federal government encouraged small savings by exempting the first $100 from income tax.
Nowadays, banks either refuse small accounts or saddle them with heavy fees. Like many foreign countries, we should use our widely distributed network of post offices as a convenient savings depository. To prevent potentially corrupting mission creep by a taxpayer-subsidized competitor, we could ban the post office from lucrative sectors like credit cards and checking.
To prevent potentially corrupting mission creep by a taxpayer-subsidized competitor, we could ban the post office from lucrative sectors like credit cards and checking.
The idea of using the USPS as a simple savings account service has some merit, but if you exclude the more lucrative ways for the USPS to make at least break-even money on this, just how is it supposed to be paid for? Even in it’s simplest form, someone has to administrate it. You need to pay for all the accoutrements of running a business. I can see banning the credit card industry- USPS has problems enough. But by what vehicle do you see this happening?