On Predatory Lending
Though I’m sympathetic to David Brooks’s column on debt, I think Noah Millman is making sense. I strongly agree with his prescriptions, particularly his stalwart advocacy of a VAT. I’d just like to add one minor point.
I do think it would be a good idea to crack down on predatory lending and so forth. But advocates of doing this should recognize that this will not suddenly make lending available at better terms; it will mean less lending to a given class of people. If we’re talking about college students, that’s probably a good thing. If we’re talking about laid-off workers, maybe not. Similarly, I have friends who are involved in establishing nonprofit credit unions to provide small loans to people who can’t get credit at a traditional bank, and shouldn’t have to rely on (legal or illegal) loansharking to get access to capital. These kinds of institutions can also do a lot in terms of financial education.
There is a long tradition of anti-usury laws in the United States. There is also a long tradition of laws criminalizing prostitution as well. Some favor legalizing and regulating prostitution as a harm-mitigation strategy. Payday loans are, to some extent, filling a niche that was once occupied by racketeers and loansharks. I think banking the unbanked is a very important goal, and I favor spending more of my (and your!) tax dollars on it. (Don’t worry, I favor spending less on other things.) I also think nonprofit credit unions should be encouraged. But the Banfieldian distinction between those with short time horizons and long time horizons is important to keep in mind — we can’t eliminate short time horizons through legislative fiat, and we should be wary of the consequences of pushing the payday loan trade back underground.
that first link makes me miss Alan Keyes’ cable show. sigh…
— donald · Jun 16, 07:14 AM · #