The Left is on a concerted warpath to dismantle so-called “payday lending” and other financial products like check protection services and installment loans. Destroying these types of short-term lending harms consumers and is part of setting the stage for nationalized banking, a proposal floated by Roosevelt Institute, the think tank of a recently-named Biden administration Treasury Department adviser.
That adviser, Felicia Wong, the president and CEO of this liberal Roosevelt Institute think tank, has also, as The New York Post’s Mark Moore reported, called for “reducing” police budgets, canceling cash bail and endorsing the racist notion that race should “always” be considered when developing policy.
Given Treasury Secretary Janet Yellen’s longtime crusade as a liberal activist — including during her time atop the Federal Reserve — it’s no surprise that Yellen created a 25-member “Advisory Committee on Racial Equity,” which includes Wong. (RELATED: Biden Admin Taps Heads Of Nonprofits Funded By Soros To Sit On ‘Racial Equity’ Committee)
“The Committee will identify, monitor, and review aspects of the domestic economy that have directly and indirectly resulted in unfavorable conditions for communities of color,” the Treasury Department said in a statement. “The Committee plans to address topics including but not limited to: financial inclusion, access to capital, housing stability, federal supplier diversity, and economic development.”
It’s true that non-Asian minorities, low-income households, less-educated households, young households and households with disabled members are more likely to be unbanked than others, but rather than turn to the government to fulfill financial transactions, the answer is empowering these consumers to shop for competitive, private-sector products that meet their needs.
In their recent policy proposal, the Roosevelt Institute calls for socialized banking, e.g. a “federal system of FedAccounts and postal banking, local public banks, and state-run no-cost, no-fee account programs.”
To justify socialized banking, the Left claims that short-term installment loans, e.g. “payday loans” have “predatory” interest rates. They want to slap on interest rate caps that would drive these lenders out of business to make room for the 500 pound government gorilla.
But in truth, people who use them say they are generally better off with these services. Tom Lehman, associate professor of economics at Indiana Wesleyan University, points out the real-world intellectual sleight-of-hand when using these inflated annualized, triple or quadruple digit interest rates.
At the Mises Institute, he gives the example of a typical payday loan fee, of $15 per $100 borrowed for a typical loan term of just 14 days, making the annualized compound interest rate “easily in the triple-digit range.” Lehman also writes about an academic analysis estimating that the median payday loan fee in North Carolina is $36, with a median, two-week loan of $244, which is an effective annual percentage rate of 419%.
“The critics of payday lending view these relatively high interest rates with much alarm, arguing that the fees charged are exploitative of poor borrowers lacking in personal financial management skills,” Lehman writes. “Yet, the effective annual interest rate on the payday loan may not even enter the mind of the borrower. In all likelihood, the borrower cares not what the ‘effective APR’ is on the loan. The real price signal to which the borrower responds is the flat fee that is charged to hold the postdated check. If the value attached by the borrower to the immediate cash advance exceeds the value of the principle plus the fee one or two weeks hence, then the borrower will undertake the transaction, pure and simple.”
Similarly, renowned economist Thomas Sowell has written, “Using this kind of reasoning—or lack of reasoning—you could … say a hotel room rents for $36,000 a year, [but] few people stay in a hotel room all year.”
Socialized medicine is wasteful and destructive; now the Left wants to do the same thing and socialize banks, a move that is doomed to fail.
Carrie Sheffield is the Tony Blankley Fellow for American Exceptionalism at The Steamboat Institute.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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