No, Gary Rivlin, the Payday Lenders and Other Fringe Lenders Are Not To Blame
I’m puzzled by Gary Rivlin. Here’s a guy who spent two years profiling the subprime consumer loan industry for a forthcoming book and who, unlike most critics of the industry, actually has journalistic credentials. Yet in a puzzling article in the Huffington Post, he inexplicably blames this industry for causing the country’s economic crisis.
Let’s remind everyone that the reasons for this crisis come from the following cause-and-effects: cheap debt made it easy for borrowers to get money to purchase houses they had no business buying. Banks and mortgage providers lent money to these people out of greed. The toxic loans were bundled into packages and sold by Goldman Sachs and other entities. The buyers of these packages failed to do their due diligence (out of greed). Derivatives called collateralized debt obligations and credit default swaps were set in place to “insure” against defaults. When the housing market collapsed, anyone holding these mortgages got wiped out.
Do you see anything about payday lenders, pawnbrokers, auto title lenders, or check cashers in there? Of course not. Yet Mr. Rivlin proposes a bizarre piece of logic as to why these alternative financiers should be regulated by the forthcoming CFPA: “If you’re not directly to blame for the current crisis, then you get a free pass until you cause a national recession of your own?”
Using Mr. Rivlin’s logic, although potato producers are not directly to blame for the country’s obesity epidemic, they should be more heavily regulated since French fries are fattening.
But the wacky logic doesn’t end there. Mr. Rivlin believes that just because these alternative financiers are subprime lenders, that they should be covered by the CFPA. His reasons are that they allegedly charge more than a loan shark; lend money to people addicted to debt, sell financially dangerous products; and lend to people who use the money to pay their mortgage.
Mr. Rivlin’s journalistic credentials should serve him better that this, because his facts are just plain wrong, or he draws conclusions that make no sense.
The loan shark allegation is an old and tired one. It ignores the real danger of loan sharks. Mr. Rivlin is presumptuous when he claims people are “addicted” to debt. An addiction refers to abnormally dependent behavior on something habit-forming. Americans are not addicted to debt, and neither are alternative borrowers. They use these services as a lifeline when people like Mr. Rivlin can’t come up with a way to offer lower-cost loans without going bankrupt. The products are no more dangerous than any other product used irresponsibly.
Curiously, Mr. Rivlin is more interested in adding unnecessary additional regulation to a product that, by his own admission, doesn’t cost a person their house or cause bankruptcy. Mr. Rivlin believes that any other lender an irresponsible mortgage borrower turns to when they get in trouble is part of the problem. Yet where is Mr. Rivlin’s call to ban the sale of alcoholic beverages or the state lottery, neither of which serve any useful purpose whatsoever, and whose abuse cause tremendous damage to families and society?
Mr. Rivlin needs to understand two important things. First, payday lenders and pawnbrokers already are regulated in almost every state they exist in. I think people like me and Billy Webster of Advance America agree that there are a few bad players in the industry, and that minor tweaks in regulation would benefit everyone involved. Handing over complete regulatory control of the industry to a CFPA headed by Elizabeth Warren or former CRL head Eric Stein, however, is the equivalent of treating dandruff by decapitation. They both scream their heads off about how much they hate payday loans.
Second, Mr. Rivlin’s article lays the blame squarely at the feet of these alternative lenders, yet never once addresses the borrower’s responsibility. What about that, Mr. Rivlin? You’re a journalist. Where’s the balance to your story?