That certain areas of life require a certain amount of regulation is clearly and obviously true. So too is the idea that there are others where we require no legal nor bureaucratic regulation, it’s something we can leave entirely to the market and its incentives to sort out. The great arguments come in snarling over which is which of course.
Which brings us to the Consumer Financial Protection Bureau and its regulation of payday loans. Given that the genesis of this organisation was Elizabeth Warren obviously it’s on the wrong side of that snarling match over what should be regulated by whom. The Trump Administration is trying to make it less so by undoing one of the more ridiculous rules it has been enforcing:
The Trump administration plans on loosening the regulatory red tape on the payday loan industry, the controversial business that helps millions of Americans make temporary ends meet at the risk of getting trapped in costly debt spirals. The Consumer Financial Protection Bureau announced today that it will no longer require lenders to make sure that borrowers are in a financial position to repay a payday loan, also known as “ability-to-repay.” The CFPB, led by Trump-appointee and former Office of Management and Budget official Kathy Kraninger, says the change will ultimately increase the availability of payday loans.
Well, no, the CFPB isn’t going to insist that people don’t check that someone can pay back a loan granted to them. Lenders do like to get paid back the money they’ve loaned out after all. So, they do a certain amount of checking whether they’ll be repaid before they loan money out.
Rather, the CFPB has been insisting upon a certain regulated process of doing this. An expensive, cumbersome – hey, this is Federal regulation, right? – method of doing this. Now they’ll no longer insist upon that. For we can indeed rely upon normal market incentives to get lenders to check whether borrowers can payback their loans.
You know, you’ll lend money to someone who can’t pay it back, right? You’ll lend money to someone without checking whether they can pay it back? And anyone think that people who do this for a living are going to do less than you or I?
Quite. Ability to pay is something the market already takes care of with its own internal incentives. Kill the rule simply because we don’t need it.