The Consumer Financial Protection Bureau under the leadership of Trump Administration nominee Kathy Kraninger has announced plans to dismantle regulations designed to prevent low-income consumers from falling into perpetual debt cycles. The Obama-era policies in question required so-called payday lenders to determine whether or not borrows could actually afford to repay loans high-interest payday within their short repayment period. They also barred lenders from making more than two attempts to withdraw payments from consumer accounts, which often results in unnecessary banking feed. Payday loans offer individuals with poor credit the opportunity to use their next paycheck as collateral against short-term loan. Because low-income borrowers cannot afford to repay the full loan amount and maintain their living expenses with their paycheck, they are often forced to roll their loans into a new loan every weeks or so, thus they become trapped in a perpetual debt cycle. It is an issue of consumer choice versus financial security. It is an issue of proper regulation.
Proper regulation is a challenge for any society and government. On the one hand, government does society a disservice when it stifles business growth and consumer choice. On the other hand, business practices that hurt consumers threaten the economy and society in general. It is, of course, the role of government to protect those they govern as a community and as members of a community. The simple truth is that the very nature of business compels businesses to exploit the needs and desires of consumers in order to derive a profit. All businesses are predatory to a degree. The kind of businesses society needs are not, however, parasitical. They are symbiotic in nature. Businesses derive a profit from consumers in order to provide for their operational, developmental needs, the needs of their investors, and the needs of their employees, but they do not decimate their consumers.
Payday lenders provide consumers, who do not have sufficient access to credit, an opportunity to access credit when they need it to cover unexpected expenses. Payday lenders are servicing a societal need that few are willing to tackle. Many payday lenders are also extremely transparent about their high interest rates. This is in contrast to the practices of many banks and credit card companies before the Obama-era odd-Frank Wall Street Reform Act created the Consumer Financial Protection Bureau. These more traditional lenders often included hidden fees in difficult to understand agreements. Their practices also helped trap Americans consumers into debt cycles. The problem with payday lenders is that short repayment periods and high interest rates are guaranteed to entrap low-income borrowers into debt cycles. Their business model is parasitical by its very nature. Issues like transparency, consumer choice, and intent are irrelevant when the nature of a business model is inherently parasitical to consumers and toxic to the communities in which they operate. Society cannot tolerate these kind of business practices. Government is, therefore, compelled to regulate business that engage in toxic and parasitical practices like those of payday lenders.
Although the Trump Administration has, in general, favored deregulation and sought to destroy the legacy of the Obama Administration, it has also moved to protect consumers. One example is an initiative by the Trump Administration to lower drug prices. Part of the effort involves forcing pharmaceutical companies to be more transparent about their pricing. The cost of medicine and healthcare in general tend to be both inconsistent and obscure, which allows companies to routinely charge certain insurance companies and consumers significantly more than others. The lack of transparency also helps shield the healthcare industry from consumer choice and competition. The Trump Administration is seeking to compel pharmaceuticals companies to be more honest about their pricing. Johnson & Johnson has even decided to take the proactive step of including some drug prices in their commercials. In addition, the FDA under Trump’s leadership is moving to hold e-cigarette companies accountable for their failure to address the vaping epidemic among teens, which is, in part, a result of their marketing practices.
When it comes to regulation, the lobbying power of a company and industry often seems more important than the need to protect people and communities. The ideological positions of those in power also seem to have a greater impact on regulatory oversight of business. One thing is certain: regulations and the applications of regulation tend to be inconsistent. The kid-friendly marketing of addictive, nicotine-laced vapes to children is an example of parasitical and toxic business practices. Gouging the sick is another example. The same can be said of payday lenders whose businesses will allegedly collapse, unless they are permitted to financially devastate the poor. Unfortunately, those responsible for regulating industries like these are often more concerned about the wellbeing of businesses and industries than people and communities.
The fear that regulation will drive companies out of business is a greater concern than the harm parasitical businesses are doing to consumers, their communities, and the economy. It is, however, precisely the kind of practices adopted by parasitical businesses that cannot be tolerated. If the fact businesses are not allowed to engage in harmful business practices means they cannot stay in business, it is a reason to regulate them, not avoid regulation. Going forward, proper regulation needs to be more consistent. The burden of regulation on businesses needs to be minimized, i.e. proper regulation means efficient regulation, but the needs of consumers, not businesses, must drive regulation.
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