Posts Tagged ‘banks’

The folly of interest rate caps, cont’d

“A new proposal would likely sharply curtail the issuance of credit cards and the extension of unsubsidized credit to lower-income people.” Diego Zuluaga comments for the Cato Daily Podcast with Caleb Brown.

More: David Henderson, Peter Suderman, Todd Zywicki and Federalist Society podcast with Zywicki and Wayne Abernathy, and Alex Tabarrok and Tyler Cowen with pointers to papers. As we noted in February, a recent study of Arkansas’s constitutional 17% cap found it hurt borrowers of modest means, who now drive to other states to take out small loans.

A second podcast with Cato’s Todd Zywicki, this one noting that earlier rounds of regulation precipitated the withdrawal of banking services from many less well-off communities to which postal banking is now being touted as a solution:

Filed under: banks, debtor-creditor law

Her Majesty’s “Unexplained Wealth Orders” go too far

I’ve got a piece in Thursday’s Washington Examiner on a remarkable new law enforcement tool in Britain:

It’s like, “Your papers, please,” but for things you own.

Authorities in Britain have begun trying out a new police power called unexplained wealth orders under a law that took effect last year. The police go to a court and say you’re living way above any known legitimate income. The judge then signs an order compelling you to show that your possessions (whether a house, fancy car, or jewelry) have been obtained honestly and not with dirty money. In the meantime, the boat or artwork or other assets get frozen, and you can’t sell them until you’ve shown you obtained them innocently.

The kicker: The burden of proof falls on you, not the government. If you don’t prove the funds were clean, Her Majesty may be presumed entitled to keep the goodies….

Related to the flipping of the burden of proof, the law says information dug up via one of the orders can’t then be used in criminal charges against the target.

…advocates want this to be the start of hundreds of seizure actions against other rich foreigners in the British capital.

Some are already calling for bringing a law like this to the United States, and maybe we’re halfway there already. Asset forfeiture laws, blessed by the Supreme Court, already let police seize your property on suspicion of involvement in a crime and make you go to court to get it back. We’ve been chipping away at financial privacy in this country for decades, through Know Your Customer, suspicious-activity reports, and FATCA (expatriate tax) rules.

Ironically — though recent enactments by Parliament may be changing this, too — Britain’s own peripheral territories and dependencies, including the Channel Islands, British Virgin Islands, Cayman Islands, etc. have long made a good business out of furnishing the rest of the world with the means of financial privacy.

The reversal of the presumption of innocence troubles many Britons, too. For the moment, use of the orders is limited to a few elite law enforcement agencies. One of those agencies, however, is Her Majesty’s Revenue and Customs — the tax collectors. It’s not wrong to worry about where this idea is headed.

Whole thing here. (cross-posted from Cato at Liberty).

Filed under: banks, United Kingdom, WO writings

Banking and finance roundup

Advice to Mark Calabria, newly installed as head of the Federal Housing Finance Administration, or FHFA [Arnold Kling; more on what to do with Fannie and Freddie]
Bad blood between Joe Biden and Elizabeth Warren on consumer bankruptcy issue goes back decades [Matthew Yglesias, Vox]
“Financial planning websites consistently emphasize paying off revolving high-interest debt before saving for retirement (unless a company offers a match rate).” But state-mandated auto-IRAs nudge workers the other way [Aaron Yelowitz, Cato, earlier]
Competition for incorporation: “Nevada adopts fee-shifting: Should Delaware worry?” [Stephen Bainbridge]
“The True Winners and Losers of Financial Regulation” [Diego Zuluaga] Fed vs. narrow banks [John Cochrane, more]
FATCA was the bad fairy’s curse at the royal baby shower: “Welcome to Tax Hell, Little Earl of Sussex” [Suzanne Lucas, earlier]

Filed under: bankruptcy, banks, Delaware, FATCA, loser pays, mortgages, Nevada

A national cap on consumer interest rates?

Two politicians with whom I regularly disagree have proposed a national cap on credit card interest of 15% a year. Because they are well known figures, the proposal is likely to get some attention.

Per one reporter, the current median card interest rate of 21.36% breaks down to 17.73% for high credit scores and 24.99% for people with low credit scores. Who do you think will be denied credit altogether under a 15% cap? Are they better off with an option of 24.99% credit, or with no option of credit at all?

Since the idea of interest caps is anything but new, economists have had a long time to study this issue, as I noted in this earlier post. One recent study looked at Arkansas, a state with a throwback constitutional provision capping allowable interest rates at 17 percent. The effect is to keep some otherwise common financial products from being offered in the state, as a result of which many Arkansans “drive to neighboring states to take out small-dollar installment loans.”

Why think that the government can set price ceilings well below market clearing levels without causing shortages of the affected good or service? More fundamentally, why should the government stand between two parties in a willing transaction? More: Steve Horwitz.

P.S. Did someone bring up postal banking?

Filed under: Arkansas, banks, Bernie Sanders

Banking and finance roundup

“In the banking world, with which I am familiar, the general belief has been that you disobey supervisory guidance at your peril. That sounds like law and regulation, but without the open process and accountability. Over many years it has certainly felt that way.” [Wayne A. Abernathy, Federalist Society commentary]
Some House Democrats use hearings to badger banks into cutting off clients in industry areas like guns, pipeline construction [Zachary Warmbrodt, Politico]
New U.S. Chamber Institute for Legal Reform papers on reforming securities litigation: “Risk and Reward: The Securities Fraud Class Action Lottery” [Stephen J. Choi, Jessica Erickson, Adam C. Pritchard]; “Containing the Contagion: Proposals to Reform the Broken Securities Class Action System” [Andrew J. Pincus]
“A pot banking bill is headed to House markup with bipartisan support” [Jim Saksa, Roll Call]
Your periodic reminder that corporate law *is* a form of public interest law [Stephen Bainbridge quoting Hester Peirce]
“History Shows Forcing Companies to Put Workers on Boards Is a Bad Idea” [Ryan Bourne, UK Telegraph/Cato, earlier on Elizabeth Warren proposals]

Filed under: banks, corporate governance, guns, oil industry, regulation and its reform, securities litigation

Banking and finance roundup

Progressive sentiment vs. actual progress: Philadelphia bans cashless stores [Jeffrey Miron; related, Billy Binion, Reason (council member thinks city should legislate against “elitism”), Joe Setyon, Reason (NYC)] Meanwhile, heading in the opposite direction: “California bill would require businesses to offer e-receipts” [Don Thompson, Associated Press]
“Overhaul CRA? Why Not Eliminate It?” [Diego Zuluaga, American Banker; video of panel on CRA at Federalist Society National Lawyers Convention with Bert Ely, Deepak Gupta, Keith Noreika, and Jesse Van Tol, moderated by Hon. Joan Larsen]
SEC should see its role as fostering, not just reining in, risk taking [Cato audio with Commissioner Hester Peirce; more from Peirce, Cato Journal]
Your taxes pay for bad mortgage loans [Hans Bader]
“With Emulex Corp., Supreme Court Could Raise Bar for ‘Merger Tax’ Securities Suits” [Stephen Bainbridge, WLF; Emulex Corp. v. Varjabedian]
In car insurance, credit scores “effectively predict risk of claims within racial and ethnic groups” and banning their use would likely “result in insurers finding other, less good and possibly discriminatory methods of distinguishing high from low risks” [Luke Froeb, Managerial Econ via Alex Tabarrok]

Filed under: banks, debtor-creditor law, mortgages, Securities and Exchange Commission, securities litigation

Buying a home? Feds want to know your identity

Another valued little piece of financial privacy being lost: in the name of enforcing money laundering and know your customer regulations, the Treasury Department’s Financial Crimes Enforcement Network has expanded a program the effect of which is to require disclosure of your identity if you buy a home in some parts of country [Kathleen Pender, San Francisco Chronicle]

Related: British financial regulators adopt new approach of “shifting the burden of proof onto foreign investors; they must now prove their wealth is legitimate.” [Jeffrey Miron, Cato]

Filed under: banks, Bay Area, privacy, real estate

Arkansas’s border-hopping borrowers

The Arkansas constitution caps allowable interest rates for lending at 17 percent. Is the effect more to protect consumers, or deprive them of desired choices? A study [Ben Lukongo and Thomas W. Miller Jr., Mercatus]

Filed under: Arkansas, banks, debtor-creditor law

NYT: credit card companies should cut off (or report) gun sales

In the New York Times, financial writer Andrew Ross Sorkin asks why credit card companies and banks should not be made to monitor customers’ accounts for unusual gun purchases and share the information with law enforcers. Excerpts from my response at Cato.

…In an advocacy piece imperfectly dressed up as a news story, New York Times financial reporter Andrew Ross Sorkin observes that some perpetrators of mass public shootings have bought guns and ammo using credit cards, and asks why credit card companies and banks should not be made to stop this. How? Well, they could “create systems to track gun purchases that would allow them to report suspicious patterns” and “prevent [customers] from buying multiple guns in a short period of time.” Invoking the Patriot Act – you knew that was coming, didn’t you? – the piece goes on to ask why the sweeping financial-snooping powers bestowed on the feds by that act should not be deployed against everyday civilians who purchase more guns than would seem fit for them to buy.,,,

The piece mentions one reason gun dealers are reluctant to pass on to banks information about what products their customers buy: someone else might come into possession of the list and know to pitch guns to those names. It doesn’t spell out nearly as clearly what might seem a bigger fear about a who-bought-guns data file, namely that it would go a long way toward identifying owners once confiscation of existing weaponry gets on the table as a proposal. The ACLU may not care about gun rights, but as Sorkin concedes, one of its policy analysts gets to much the same point by a different route: “The implication of expecting the government to detect and prevent every mass shooting is believing the government should play an enormously intrusive role in American life.”

Whole piece here.

P.S. Scott Greenfield: And just wait till they accomplish their crackdown on transactions in cash. More: David French, James Setterlund.

Filed under: banks, guns, New York Times, WO writings

“Should Governments Restrict Cash?”

“Central bankers and mainstream monetary economists have become intrigued with the idea of reducing, or even entirely eliminating, hand-to-hand currency. Advocates of these proposals rely on two primary arguments. First, because cash is widely used in underground economic activities, they believe the elimination of large-denomination notes would help to significantly diminish criminal activities such as tax evasion, the illicit drug trade, illegal immigration, money laundering, human trafficking, bribery of government officials, and even possibly terrorism. They also often contend that suppressing such activities would have the additional advantage of increasing government tax revenue. [A second argument relates to monetary policy.]…

“Yet the arguments for phasing out cash or confining it to small denomination bills are, when not entirely mistaken, extremely weak.” [Jeffrey Rogers Hummel, Cato Policy Analysis No. 855]

Filed under: banks