I am about to defend a bunch of real assholes -- no not in government, in the private sector. But sometimes you have to do it. You sometimes have to defend the porn theaters, Klansmen and Nazis in order to protect free speech. In the same regard, you have to protect the pawn shops, payday loans and credit card companies in order to protect a free economy.
Don't tune out just yet. I am well aware these guys are the ugly underbelly of the financial world. I am well aware that they charge outrageous interest rates. I am well aware that often it is the poor and uneducated that get caught up in all this -- though I can surely say I've seen more than my share of college educated middle class folks driving their Lexus and sipping a caramel macchiato while they stuff their big wad of credit card receipts into their Coach handbag.
The fact is: like it or not these companies provide a service by providing (often unsecured) risky loans to people that want them. And while none of us outside the legal profession probably read the 8 pages of fine print reduced to the size of a 3x5 card for easy storage, we pretty much know what the deal is. We get something, we pay more later. And I will argue and argue and argue and argue until I turn blue in the face that this is an irrational way of going through life, but just like I don't want to outlaw your church, I don't want to outlaw risky credit.
But that's just what House Resolution 1608 and Senate Bill 500 propose to do. They would cap interest rates at a pretty gosh darn freakin high rate of 36%. But think for a moment: what would that do? Obviously rates above 36% exist, or they wouldn't even be discussing this. Obviously there is a demand for loans at that rate. So illogically, let's cut the supply, shall we?
I'd like to point out here... again... what happened with the housing industry. Oh, there was lots of stuff that went on. (Read this for a detailed, annotated history.) But the gist of it is: in a lovely human gesture to save the poor and less educated, the government encouraged, cajoled and sometimes forced loans to be made at interest rates below market value. Result? Calamity. Housing and banking will take years to recover and the folks that were being "helped" are now in worse shape than they ever were.
I'm not saying that closing a few pawn shops will crash the economy further. What I am saying is that the more you restrict the risky credit, the less options are available to exactly the segment of the population you are trying to help. We are already seeing banks retracting credit and reducing credit limits. This is for their own protection. They've been overextended for a long time now. They're trying to fix themselves. Restricting this will only prolong their agony or ensure their failure.
And when you move the "fair" credit to the pawn and payday loan market, the results are much more ominous. If you think these guys are scum, think for a minute what they're going to do if you don't pay: wreck your credit, pester the living crap out of you, sell your hocked power tools and make you miserable. The alternative lending sources for the same segment of the population is going to be Uncle Vito. He's more likely to burn down your house, threaten your kids or break your kneecaps. (Oooh, a good excuse for universal health care!)
In short, the left will do to finance what the right would like to do to abortion and mind altering drugs. This sort of short sighted law does not squelch demand. It just makes it riskier for the supplier -- creating higher dangers for everyone. This bill isn't about protecting consumers from unreasonable credit rates. This bill is about launching the careers of a bunch of new loan sharks.