Fortunately, Felix Salmon furnishes just such a dose this evening. He writes of a particularly egregious case of payday lending in New Mexico.
In the case cited, Felix reports the case of a borrower who took out a loan for $100 with a whopping 1147% APR. Yes you read that correctly, one thousand one hundred forty seven percent. He properly calls it loan sharking.
He, however, sees this as a perfect example of why we need a Consumer Financial Protection Agency:
I hope that the New Mexico attorney general does manage to get these loans deemed illegal. But in any case one look at them is enough to prove that they’re not in any way being priced off of credit risk — the lenders are likely to make a massive profit even in most cases where the borrower defaults. This is loan sharking, pure and simple — and, for the time being, it’s legal. Isn’t it about time that we have a Consumer Financial Protection Agency which could put an end to this kind of thing?
Apparently he believes that the New Mexico attorney general and the good citizens of that state are incapable of or unwilling to step in and put an end to this sort of thievery. Ergo, we need the federal government in the form of a newly created bureaucracy to show them the path to righteousness. I disagree.
The mere fact that this case has been brought to light and that the authorities in New Mexico are advocating the rights of this unfortunate borrower argues in favor of letting them solve the problem themselves. From the article, it appears as if these types of lenders have found a loophole in the state’s laws and are abusing it. It would seem quite logical that the state might well recognize their legislative error and correct it without any help from Uncle Sam.
Personally, I find this less an argument in favor of some new consumer regulatory authority and more a rather refreshing example of local government coming to the assistance of one of its citizens who has been wronged.
I’ll leave it up to you to decide if a Washington commission would have performed this effectively.