Congress Causes Credit Card Customers to Jump to Sharks

From today's WSJ, George Mason's Todd Zywicki on how Congress has pushed credit card users and bank customers into the arms of payday lenders, pawn brokers, and other less-savory substitutes:

In his letter to shareholders last spring, Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15 percent of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes." Meet the new payday loan customers.

The whole thing is worth reading.

Me on payday lending and unintended consequences here. Me on the Credit CARD Act here. A video on payday lending featuring Zywicki here.

Comments

[Old Mexican]

Todd Zywicki on how Congress has pushed credit card users and bank customers into the arms of payday lenders, pawn brokers, and other less-savory substitutes...

...like government assistance.

[Jeffersonian]

Striving to better, oft we mar what's well.

- Shakespeare, King Lear

[Danny]

Trouble here is that it can be seen as an argument against piecemeal regulation -- and in favor of "comprehensive" regulation of the whole credit field -- just as easily as it can be seen as an argument against regulation.

Anyway, the ideal of "easy credit" does not fit neatly into any "Libertarian" box. Consumer credit -- nay, most all unsecured financial contracts -- invoke the power of the state to coerce and enforce, and that coercion and enforcement leverage funds involuntarily taken from taxpayers. With a low level of default and collection actions, this coercion is deemed tolerable. But with a high level of default and collection actions, the amount of coercion and enforcement is much less tolerable, and this verity should be most readily apparent to people who call themselves Libertarians.

The decision to restrict, limit and constrain access to the coercive remedies of government in the field of borrowing-and-lending contracts is not counter Libertarianism; indeed, it may well be of a piece with it.

A vigorous and active "creditors' rights" government is not my idea of an intellectually coherent Libertarian regime. It probably would just substitute majority money for majority votes in the end. If you are a Libertarian but you want to make money on loans, you should be ready to operate in an environment where the levers of governmental enforcement in your favor are subject to serious limitations.

[Ayn_Randian]

Your argument applies to every single economic and social transaction ever.

When you enter into any contract, what "lever" of enforcement is implicit in said contract?

But with a high level of default and collection actions, the amount of coercion and enforcement is much less tolerable...

subsitute "default and collection actions" for "rape, prosecution, and incarceration" or "murder, prosection, and incarceration" and your argument completely falls apart.

Basically, what you are saying is that because government enforces contracts, creditors should be regulated.

[Ayn_Randian]

Correction and tag closure:

But with a high level of default and collection actions, the amount of coercion and enforcement is much less tolerable...

subsitute "default and collection actions" for "rape, prosecution, and incarceration" or "murder, prosection, and incarceration" and your argument completely falls apart.

Basically, what you are saying is that because government enforces contracts, creditors should be regulated

[Danny]

"Basically, what you are saying is that because government enforces contracts, creditors should be regulated."

That is precisely what I am saying. Anything contrary would be very nearly incoherent, or, at best, functionally advocating a lenderocracy.

[Old Mexican]

Re: Danny,

That is precisely what I am saying.

And Ayn_Randian showed yo that your argument is fallacious. An arbiter cannot (or should not) be an owner or a stakeholder.

[Danny]

You are perfectly incoherent.

[Tulpa]

Don't forget the roads...

[cynical]

We have some comprehensive regulations already. For example, breaking kneecaps is not an acceptable late-payment penalty.

[Old Mexican]

Re: Danny,

Anyway, the ideal of "easy credit" does not fit neatly into any "Libertarian" box. Consumer credit -- nay, most all unsecured financial contracts -- invoke the power of the state to coerce and enforce, and that coercion and enforcement leverage funds involuntarily taken from taxpayers.

So do child support payments or parking ticket fines. You're not saying absolutely anything.

[swillfredo pareto]

If you are a Libertarian but you want to make money on loans, you should be ready to operate in an environment where the levers of governmental enforcement in your favor are subject to serious limitations.

Is that just because you say so or do you have an intellectual argument on why the federal government should be interfering in transactions between consenting adults at the local level? The fact that government actually has a valid role as an agent in the remediation of contract disputes in no way empowers them to regulate the terms of the contract itself.

[Danny]

"The fact that government actually has a valid role as an agent in the remediation of contract disputes in no way empowers them to regulate the terms of the contract itself."

Um, yes it does.
QED.
Thanks.
Buh-bye.

[Old Mexican]

Re: Danny,

Um, yes [government] does [regulate the terms of the contract itself].

You're equivocating. Even though government does it, in no way justifies it. Just because the police purport to safeguard your property does not mean the police are empowered to dispose of your property as it sees fit EVEN if the police does it as a matter of routine. Might does NOT make right.

[swillfredo pareto]

Buh-bye.

Your intellect is hurting my eyes. Could you please go shine it somewhere else?

[Ken Shultz]

Constraining the choices of consumers or the options of those who offer them credit couldn't possibly make consumers better off.

The solution to politicians using taxpayer money to bail out financial institutions is to punish the politicians at the ballot box.

If they wanted to pass a law restricting the government from using tax payer money to bail out financial institutions, they could have done that. Instead, they chose to deprive consumers of the credit they want.

No sense in making the justification for that for them. This was a cop out--plain and simple. When it was all on the line, they voted to blame consumers for what they themselves did.

The politicians are the ones who bailed out the financial institutions--they're the ones who should have their available choices carefully circumscribed. It wasn't the banks who let us down--it was George Bush and Barack Obama and their cronies in Congress.

...not the consumer.

[Cortillaen]

Trouble here is that it can be seen as an argument against piecemeal regulation -- and in favor of "comprehensive" regulation of the whole credit field -- just as easily as it can be seen as an argument against regulation.

No, it cannot unless you first make the assumption that unintended consequences are the result of piecemeal legislation rather than of legislation itself. Without that assumption, you're trading the disruption of rocks thrown into one end of the pool causing ripples to spread for that of throwing rocks into all parts of the pool.

[P Brooks]

Just think how much worse the meltdown would have been if those evil lenders had been allowed to include a risk premium in their interest rates!

[Libertard]

The entire crisis was caused by niggers and spics poor people who shouldn't be taking out home loans.

So uh, you shouldn't ban people from having credit cards! Everyone should have a credit card, even those that probably shouldn't!

[Old Mexican]

Re: Libertard,

The entire crisis was caused by niggers and spics poor people who shouldn't be taking out home loans.

The entire crisis was caused by counterfeiting and money-laundering miscreants the Fed.

[pmains]

If a credit card company issues a credit card, they are assuming the risk of default. My only objection is when the card issuers (often banks) get big, fat federal guarantees to be bailed out with my -- and future generations' -- money.

But, no. I really don't care if Benny the Nose or Hobo Hanson get a $3 million credit limit.

[TrickyVic]

^^This^^

[Koch Brother]

The banks will always bailed out when they're in trouble, if they're not than me and my billionaire friends would loose to much money!

Oh, you thought we really believed in the "free market" and "limited government" and "liberty"?

Fuck no, sucker! Those are just pretty labels we use to cover the real purpose of you tools--"The 1% getting more and more wealthy"!

Like giving me a tax break so I can open another factory in China that uses child labor, and sell the plastic crap here at a 500% markup! What's more, the sucker will buy 'em with credit cards! And I'll make money on the interest!

Oh uh...liberty! Free markets!

[Old Mexican]

Re: Koch Brother,

Like giving me a tax break so I can open another factory in China that uses child labor, and sell the plastic crap here at a 500% markup!

I have a factory in China that uses child labor and give the crap only a 450% markup, basically undercutting you. Tough luck, KB!

[cynical]

Is the government pressuring credit card companies to give loans to poor people?

[Koch Bros.]

Keep arguing against credit card and payday loan reform! Certainly *I* don't profit from them!

Hehe, suckers...

[pmains]

This is a bit like the Simpsons' episode where Springfield is overrun by pigeons. The pigeons are run off by introducing lizards into the environment. The lizards are eaten by snakes; the snakes by gorillas. The gorillas freeze to death when winter rolls around.

The payday loans will be regulated out (and have been already by 17 states). Then the pawn brokers. After that, I'm not sure.

[cynical]

It goes like this:
1) Credit card
2) Payday lender
3) Pawnshop
4) Loan shark
5) No credit

It's theoretically possible to move people from from #4 to #5, but much more difficult, since they already operate outside the law -- and they will only get more powerful as people lose access to more reputable and law-abiding alternatives. The black market in credit is the same as any other black market, and I doubt government will be more any more successful in fighting it than they were with booze or drugs.

[sayman]

Guess this is the "reality has liberal bias" I always hear about.

[Koch Brother]

See, I'm your natural superior. I have the money, I should get to make the rules, and the rules say I can do whatever the fuck I want, cause I got the cash.

The only function of government, see, should be a police force and army to protect *MY* wealth from you parasites.

[Old Mexican]

As much as I don't have a high regard for the Kochtopus, the above is getting to be boring really fast.

[Koch Brother]

I don't give a shit if you have a high regard for me or not, sucker. You'll still protest everytime someone tries to raise my tax rate!

You know how many billions I got from the Bush tax cut? And suckers like you were out there screaming for 'em!

[joe]

I don't think anyone cares about your taxes or how much you profit; people are concerned about the role of government. Suckers? The suckers are those that believe the only outcome of increased taxes and regulations is a positive for the citizens. Why is it every country that successfully lifts people out of poverty is one that loosen government control and reforms taxes?

[Koch Brother]

That's a good little sheep! Keep lobbying for my billions in tax breaks!

Next up is busting the public unions by forcing the states to declare bankruptcy, then replacing middle class jobs with teachers who make $10/hour and can be fired at will. Why? So I can get another tax break!

LIBERTY!

[joe]

OK

[Apogee]

The banks will always bailed out when they're in trouble, if they're not than me and my billionaire friends would loose to much money!

And...

busting the public unions by forcing the states to declare bankruptcy

So bailing out states that screw up is ok then?

Suckers are those that only hold certain people accountable.

[Vaccine]

One of the worse Koch trolls ever. Unamusing, shrill, and lacking creativity. Please try harder.

[Rock Action]

Awful. And I'm not usually a grammar asshole, but using "loose" instead of "lose" makes it even worse. If you're going to troll, you ought to be creative, funny, intelligent, post-modern, etc.

And I doubt it's a typo.

[Rock Action]

Fucker can't even get "too" and "to" right, much less have read this website, which is clearly against government intervention in bank bailouts.

Dumber than Tony, shriller than shrike. Oof.

[R C Dean]

Anyway, the ideal of "easy credit" does not fit neatly into any "Libertarian" box. Consumer credit -- nay, most all unsecured financial contracts -- invoke the power of the state to coerce and enforce, and that coercion and enforcement leverage funds involuntarily taken from taxpayers.

I, for one, have no problem with a minarchist libertarianism that vests final dispute-resolution authority with the state under the rule of law. Contract disputes typically boil down, really, to property rights, and defense of property rights is a legitimate function of the minarchist state.

I think you are confusing "libertarian" with "anarchist".

[Danny]

Anything can be labeled a "property right" or not. Minarchy then just becomes a product of semantics.

There is no functional difference between intellectual property like copyrights and patents - which everyone readily recognizes as creatures of the law - and any other type of tangible or intangible property.

Your mind is a barren wasteland.

[Old Mexican]

Re: Danny,

Anything can be labeled a "property right" or not.

You must mean that anything can be labeled "property", which is equally false. Not everything can be property, only those things subject to scarcity.

There is no functional difference between intellectual property like copyrights and patents[...]

You're absolutely right - both are equal manifestations of government imposition, as ideas are not scarce, non-rivalrous and non-excluding.

You seem to have flown off a tangent to avoid addressing RC Dean's point - as usual.

[Danny]

You string words together without meaning.

[Tulpa]

Well there is the fact that most "tangible" property is rivalrous; ie, one person's use/possession/control of the property inherently prevents use by another person.

Once we start treating bank accounts and stocks and such as property, then we've necessarily entered the realm of contract enforcement. eg, I don't need the state to enforce a contract to defend my ownership of my car, but I do (potentially) need the state to enforce a contract to get money out of my bank account.

[cynical]

That's certainly an argument for tying taxation to your potential imposition on the system in terms of contract enforcement (not to say there aren't arguments against), but it doesn't actually give the state any particular interest in any particular outcome, so I can't see why it would justify regulation.

It's more plausible to me that regulations increase the cost of contract enforcement -- not only do you have to pay the regulatory apparatus, but people have even more details to quibble over in court, since you have not only the terms of the contract, but also the terms of a complex set of not-quite-laws to consider.

[Marcus]

Anything that prevents credit card companies from jacking up interest rates from 14% to 30% for being a day late with a monthly payment is a good thing in my book.
Don't believe Jamie Dimon's bullshit about how this is driving people to payday lenders. The big banks are just annoyed that they can't make money off the backs of people behind on their credit card payments. (For every irresponsible slacker, there are plenty of hardworking folks who are having a hard time paying the bills without a huge bank fee or high interest rate preventing them from buying groceries for their family.
I always plead with the customer service reps - don't assess me a fee, make me come down there and sweep the floors of the bank instead. Why punish me with a fee if lack of money is my problem in the first place?

[Old Mexican]

Re: Marcus,

Anything that prevents credit card companies from jacking up interest rates from 14% to 30% for being a day late with a monthly payment is a good thing in my book.

Good - because that's called "competition."

Anything that relies on coercion, naked aggression and force to prevent credit card companies from jacking up interest rates is NOT O.K. in MY book.

[I] don't believe Jamie Dimon's bullshit about how this is driving people to payday lenders.

It is the decision from credit card companies to not issue credit cards because of the mandates that drives more people to payday loans. Since this is already happening, I don't understand your incredulity.

The big banks are just annoyed that they can't make money off the backs of people behind on their credit card payments.

You would not be so cavalier if it were YOUR money you're lending.

[Marcus]

Wrong, Old Mexican.
If it were my money I was lending, I would cap the interest rate at 5% (and I've never charged interest when giving loans to friends and family).
Usury may not be a sin but it comes awfully close - it implies a terrible mistrust of your fellow man.
[Exodus 22:25 - If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.]

[wtf dude?]

John Stossel already had a show about it and predicted this would happen.

[Almanian]

Yes, if only someone could have predicted that this would happen...

Oh, wait....

[Tulpa]

This is a problem. But we can fix it with a law forcing the credit card companies to give credit cards to everyone who wants one. And another law mandating everyone to get a credit card and pay interest on it every month, or else they have to pay an Article I Section 8 contribution.

[BritainLoans]

People who take payday loans are not middle or upper class people most of the time. These are people who are about to lose the family apartment, which means homelessness and in some places losing their children as a result. Predatory towing often takes place in much the same manner. They prey on working class citizens who need the car for work the next day or face losing their only source of income. Granted the APR for no credit check loans is high, but if you have the money to lend these people and want to take the credit loss risks, go ahead. Otherwise, stop the bashing of these credit products and offer an alternative form of short term credit.