Last night's post concerning the crackdown on banks' overdraft fees and programs by federal bank regulators and the always vigilant CFPB, spurred one long-time financial institutions' attorney to write me the following hot opinion this morning, which I've editied to remove identifying information that could be used by the KGB to hunt down this lawyer and his family members and send them all to re-education camps:
“ . . . especially when those babies' parents will be turning to alternatives like pawn shops, payday lenders, and a guy named Vito.”
You hit the nail on the head. The history of this country shows that when the government restricts the legal supply of something people want, they find a way to get it through “extra-legal” means. In many states (like mine), the state has driven payday lenders out of existence, which makes overdraft protection, pawn shops, and “Vito” the only viable alternatives. Now the CFPB, and seemingly also the prudential regulators, wants to stamp out overdraft protection programs. It boils down to this – the CFPB doesn’t want people borrowing (in any form, including overdrafts) on terms that the CFPB finds distasteful. The problem is that people with difficult financial histories and circumstances will usually not be able to get credit at “tasteful” rates.
You will not find me arguing that reliance on overdraft protection is a sound financial strategy. But unless the CFPB starts handing cash to consumers, they will not solve the problems of consumers by forcing XYZ bank and ABC credit union to do business only with those for whom credit is a convenient tool rather than a necessity for survival. In states where payday lending is not an option, “Vito” is going to be a lot busier. Is that really good for consumers? (Vito probably doesn’t offer financial education to his regular customers to help them break their dependence on short term credit.) For the economy? (Vito probably doesn’t’ always pay taxes on the interest – or the pound of flesh - he collects.)
I realize that I'm often preaching to the choir, but sometimes the choir sings so damn well that I just can't stop myself.