As the fallout from the coronavirus worsens, Americans are hurting — both hourly and white-collar workers alike have been impacted in unprecedented numbers, with terrifying levels of unemployment claims and a hollowing out of the consumer spending and travel that normally keep our economy strong.
As this crisis spreads, lending institutions are being asked by our government to ensure that access to credit made available both for individuals and businesses alike, even though lenders are in a situation where extending credit in this crisis entails much higher risk. Yet at the exact same time, some Democrats are trying to put price controls on access to credit for the most vulnerable in our community, and in the midst of the chaos put an arbitrary and punitive rate cap that will dry up the credit Americans need access to right now while putting lenders out of business.
Democrats tried during the last coronavirus relief bill to shove in a massive restriction of consumer lending credit by capping interest rates on very short-term small-dollar loans, typically used in emergency situations by low-income Americans, at 36 percent. Even before the coronavirus crisis, this measure could not pass through the House Financial Services Committee, which has one of the most progressive liberal House members, Maxine Waters, as its chair. Even Democrats on the committee realized the disastrous consequences that restricting access to credit would produce. In many states, small-dollar lenders have even been deemed “essential” because of the record number of individuals who need access to money in order to make ends meet.
According to the Federal Reserve Bank, nearly 40 percent of Americans don’t have enough money to cover a $400 emergency and more than 20 million Americans are considered “unbanked,” meaning they do not have access to banking systems, and their only option is to secure a short term small-dollar loan. The loans some Democrats want to eliminate are literally a life raft for exactly the kind of emergency Americans are in today — but if we don’t preserve lenders’ ability to stay in business, they won’t be able to extend credit, and Americans will be denied the flexibility to make choices about their own financial future.
And while some Democrats in Washington seem to peer down from an ivory tower, they appear to have little concept of what Americans truly need to get by — at least 23 million Americans took out one or more payday loans in 2018, and a Harris poll found that 95 percent of recipients of these loans were not only satisfied with them but believe they should be able to make the decision to borrow a small dollar loan, not the government.
There are few alternatives to small-dollar loans are few, but for many, they include the false choice between borrowing an emergency loan or overdrawing a bank account if they have one and paying exorbitant overdraft fees which are inefficient, punitive, and far worse than taking out a short term loan.
As access to credit from these small-dollar legitimate lenders goes away, Americans will be forced to find more ways of borrowing money that are predatory and sometimes unregulated altogether. It’s better to have people borrowing from legitimate lenders above the table, than being forced to turn to black-market lenders out of desperation.
A crisis is a time to expand and increase the options and the choices of Americans who are in a financial bind, not restrict them. Democrats need to wake up to the realities of many Americans today and sideline these foolish proposals to restrict credit. Anything else is turning a willfully blind eye to the needs of their constituents.
As this crisis spreads, lending institutions are being asked by our government to ensure that access to credit made available both for individuals and businesses alike, even though lenders are in a situation where extending credit in this crisis entails much higher risk. Yet at the exact same time, some Democrats are trying to put price controls on access to credit for the most vulnerable in our community, and in the midst of the chaos put an arbitrary and punitive rate cap that will dry up the credit Americans need access to right now while putting lenders out of business.
Democrats tried during the last coronavirus relief bill to shove in a massive restriction of consumer lending credit by capping interest rates on very short-term small-dollar loans, typically used in emergency situations by low-income Americans, at 36 percent. Even before the coronavirus crisis, this measure could not pass through the House Financial Services Committee, which has one of the most progressive liberal House members, Maxine Waters, as its chair. Even Democrats on the committee realized the disastrous consequences that restricting access to credit would produce. In many states, small-dollar lenders have even been deemed “essential” because of the record number of individuals who need access to money in order to make ends meet.
According to the Federal Reserve Bank, nearly 40 percent of Americans don’t have enough money to cover a $400 emergency and more than 20 million Americans are considered “unbanked,” meaning they do not have access to banking systems, and their only option is to secure a short term small-dollar loan. The loans some Democrats want to eliminate are literally a life raft for exactly the kind of emergency Americans are in today — but if we don’t preserve lenders’ ability to stay in business, they won’t be able to extend credit, and Americans will be denied the flexibility to make choices about their own financial future.
And while some Democrats in Washington seem to peer down from an ivory tower, they appear to have little concept of what Americans truly need to get by — at least 23 million Americans took out one or more payday loans in 2018, and a Harris poll found that 95 percent of recipients of these loans were not only satisfied with them but believe they should be able to make the decision to borrow a small dollar loan, not the government.
There are few alternatives to small-dollar loans are few, but for many, they include the false choice between borrowing an emergency loan or overdrawing a bank account if they have one and paying exorbitant overdraft fees which are inefficient, punitive, and far worse than taking out a short term loan.
As access to credit from these small-dollar legitimate lenders goes away, Americans will be forced to find more ways of borrowing money that are predatory and sometimes unregulated altogether. It’s better to have people borrowing from legitimate lenders above the table, than being forced to turn to black-market lenders out of desperation.
A crisis is a time to expand and increase the options and the choices of Americans who are in a financial bind, not restrict them. Democrats need to wake up to the realities of many Americans today and sideline these foolish proposals to restrict credit. Anything else is turning a willfully blind eye to the needs of their constituents.
With more than 30 years of public policy, communications, and political experience, Ron Nehring brings the lessons learned from these experiences to individuals and audiences across California, the United States, and globally. In 2016, he served as National Spokesman for Republican presidential candidate Ted Cruz, building on his experience as California Republican Party Chairman and the 2014 Republican nominee for Lt. Governor of California.
