Opinion: Counterculture McGoverniks don’t bounce checks
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Hector Becerra’s recent Times story on Baldwin Park’s efforts to stamp out payday lending businesses contains a pretty interesting reality-check passage:
Officials in some cities, including Baldwin Park, argue that the proliferation of such businesses reinforces their reputations as poor communities. State regulators say that there are ‘bad apples’ but that the number of complaints from consumers against these businesses are relatively low, especially considering the volume of transactions. The amount customers can borrow at payday lending stores is limited to $255. To do so, a customer might walk in and sign over a check for $300. The payday advance store agrees to defer deposit of the check for two weeks or more. The rates are usually clearly laid out for customers, regulators say. ‘The industry may not be very popular, but it’s very transparent,’ said Mark Leyes, a spokesman for the California Department of Corporations. ‘Why ever risk penalties by cheating somebody out of an extra $5 when you can just do it’ legally?
I take all that to mean this is another solution in search of a problem, more aesthetic disapproval disguised as public interest. Government is almost as good at quashing economic activity in the hood as it as at complaining about the lack of opportunity in the inner city.
OK, so that’s just my opinion. But it also appears to be the opinion of George McGovern, the onetime repository of hope for the American left and Democratic presidential candidate back in 1972. Here’s McGovern in an eye-opening Wall Street Journal op-ed, defending sub-prime lending, check-cashing shops and other favorite targets of what he calls ‘economic paternalism’...
With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating. Anguished at the fact that payday lending isn’t perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who’s familiar with the law of unintended consequences should be able to guess what happens next. Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it. Since leaving office I’ve written about public policy from a new perspective: outside looking in. I’ve come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society. Why do we think we are helping adult consumers by taking away their options?
I’ve never made a study of McGovern’s career, but I wonder if he isn’t pointing too fine a point on it with that ‘Since leaving office’ bit. In economic terms, it wasn’t altogether clear that he was the left-leaning alternative to Nixon in 1972; a president who thought wage and price controls were the way to manage the American economy had pretty much renounced any serious claim to being a laissez-faire capitalist, and even at the time McGovern was less a statist than a maverick the hippies could grok. In any event, McGovern’s defense of economic freedom is a welcome antidote to the surge of do-goodniks looking to impose one-size-fits-all fiscal solutions on people who already have few enough options.