Obama turns the regulatory state into a quasi-legislature.
If you’re familiar with payday lenders, you probably know that the manner in which they lend money is – shall we say – not the wisest way to access capital. They lend money against people’s paychecks (almost exclusively to low-income people who have a hard time getting conventional credit), and the typically roll over the loans each pay period, adding to the interest owed each time they do.
This is not how you want to borrow, if you do at all, and there’s a lot to be said for regulating the way this industry works, and that’s a matter that’s always been left to individual states to decide.
Or it was until now. With no corresponding action by Congress, the Obama Administration has taken the liberty of making new rules via the regulatory state for how the payday lending industry has to operate. Some of the rules are reasonable, like making the lenders better assess a borrower’s ability to pay the loan back. Others could lead to trouble, like opening up the door for class-action suits that never benefit anyone but the lawyers who work the case.
But it troubles me, and it should trouble you, that this administration simply picks out industries that are easy political targets and decides to “crack down” on them. The loan agreements between payday lenders and their customers are freely entered into, and the terms are legal. As is so often the case when politicians complain about “predatory lenders,” I note that the individuals who accept the loans are not being forced to do so. I disagree with the idea that they have “no choice” but to take out these loans. If you’re hard up for money, you certainly have a choice other than borrowing – and in fact, it’s rarely in your interest to take on debt when you’re having trouble simply paying your bills.
So yes, the borrowers do have a choice, and if they enter into one of these loan agreements, both parties in the deal were acting freely and legally.
If the Obama Administration wants new laws passed to govern how all lenders have to deal with all borrowers, he should go to Congress and propose it. He won’t do that, of course, because Congress is Republican-controlled and he decided some time ago that this exempts him from the Constitution. When he started going around saying, “If Congress won’t act, I will,” what he was really saying was, “I’m going to do what I want. Try and stop me.”
Now you might argue that in this case his action is not so bad because the business practices of the payday lending industry could use some changes. But that’s not the real issue here. Obama has made the regulatory state a de facto legislative body during his presidency, and he chooses which industries, groups or individuals will come under special scrutiny, or be forced to abide by new rules he sets.
If Congress should do something but won’t, the solution is to elect a new Congress. It is not for the president to just take matters into his own hands. Today it might be an industry no one likes very much. Tomorrow could be a very different story.