Rep. Mia Love (R-Utah) said the dumbest thing and made the worst argument about the Consumer Financial Protection Bureau (CFPB) regulation of payday loans. If the quote published by many is correct it just shows a total lack of understanding about why people get into trouble with payday loans.
Debt is the byproduct of misfortune or bad choices. It’s created through all sorts of issues, predominately unrealized, unconscious, or unforeseen.
Even a casual awareness of behavioral economics will educate the average person about the emotional drivers of indebtedness. I’m not suggesting people are always blameless or victims of their debt. What I am suggesting is people don’t have an awareness about what drives them to make emotional decisions about money, credit, and debt.
Government plays an important role in helping to protect people from getting into financial trouble by regulating problem financial products. Even the large credit card industry has been subjected to federal regulation to help protect you and me.
For example, let’s look at the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Since the passage of that act the CFPB found consumers have paid less in late payment and over-the-limit fees. The CARD Act was responsible for the elimination of those explosive late fees and penalty interest rates that used to be rampant.
So what is Representative Mia Love reported to have said that is so mind boggling naive,
“I find it offensive that you would say that people aren’t smart enough to make decisions for themselves,” Rep. Mia Love, R-Utah, told a top CFPB official.
Well Representative Love, here is the reality from the front lines. A vast number of people are not smart enough to make their own financial decisions. It’s not because they are dumb, it’s because they just don’t have the same level of experience and awareness that the white coat scientists do who are devising the plans to market and sell.
Sometimes the average person needs some white coat scientists fighting for them to level the playing field. Here is a payday report put together by such a group. I encourage you to stop the average person on the street and encourage them to digest it.
The CFPB found two-thirds of people who took out payday loans don’t have the ability to repay them. They get locked into a revolving door of unaffordable debt. And let’s be clear here, the folks taking out payday loans are not even the most sophisticated of consumers. You won’t find a Wall Street banker down at the local cash express office because they recognize the deal stinks if you factor in the emotional drivers and financial reality.
And the CFPB isn’t trying to shutdown payday lenders with recommendations people could not take out another payday loan for 60 days. They are just trying to put an emergency brake on the revolving door of unaffordable payday loans taken out by members of our country who can least afford them. As it stands now, 82 percent of payday loans are renewed within 14 days.
Sometimes people do need to be protected from themselves. If not, then why do we have airbag recalls. If we use the logic of Congresswoman Love, people should be smart enough to know to replace their own airbag in their car without government intervention.
The hearing this all unfolded at was called “The CFPB’s Assault on Access to Credit and Trampling of State and Tribal Sovereignty,” and held by the House Financial Services subcommittee. Of course this comes just a day after a criminal indictment was unsealed against Scott Tucker and Timothy Muir “for operating a nationwide internet payday lending enterprise that systematically evaded state laws in order to charge illegal interest rates as high as 700% on loans.”
The Department of Justice went on to say, they had reached an agreement “with two tribal corporations controlled by the Miami Tribe of Oklahoma, a Native American tribe. As part of the Agreement, the tribal corporations agree to forfeit $48 million in criminal proceeds from Tucker’s payday lending enterprise that are currently held in tribal bank accounts. The Agreement also acknowledges, among other things, that a tribal representative filed false factual declarations in multiple state court actions. Tucker and Muir used these false declarations to defeat numerous state enforcement actions seeking to enjoin the operation of their unlawful business.” – Source
So if the average person is smart enough to make decisions about the average payday loan then why weren’t the average states smart enough to stop the payday scheme that started years ago?
In this criminal action the U.S. Attorney also credited the work of the IRS, FBI, Criminal Investigators at the United States Attorney’s Office, and the Federal Trade Commission, for their assistance with the case. Not the kind of brain power available to you and me.
And Rep. Love thinks Jimmy John Smith who is working two jobs just to keep the lights on is going to be the best person from making a bad choice on a payday loan?
And as a Bonus of Unbelievability
Apparently Representative Love wants the Department of Education to get out of the student loan business. Can you imagine the carnage that would occur if all educational loans were private student loans? We’d bankrupt future generations nearly overnight.
So is Love suggesting the explosive student loan debt problem is because government didn’t step in to control the level of debt. Isn’t that exactly what she is trying to stop with her payday loan argument?
I’m not calling Congresswoman Love dumb; just grossly uninformed when it comes to the underlying issues that drive people into terrible financial trouble.
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.