Elizabeth Warren gets a lot of attention these days, presumably because she is in the Obama Administration. Otherwise, she would not be deserving of this same attention. For reasons I have yet to suss out, she appears to have become an authority on all things economic, even though sheâ€™s a lawyer â€“ not an economist, entrepreneur, or business owner.
Iâ€™ve stayed on the sidelines regarding Prof. Warren until now, because her latest entry at the Huffington Post is riddled with inaccuracies. As anyone familiar with her published works knows, this is not unusual. She apparently has made a career out of reaching conclusions that are at odds with most other studies.
Ms. Warren falsely claims that, â€œDemocrats and Republicans alike agree that the proliferation of unregulated, non-bank lenders contributed significantly to the financial crisis by feeding millions of dangerous financial products into the economic system.â€ The statement fails to identify who these specific politicians are, and how many of them she refers to. Furthermore, the statement is false, because these non-bank products did little, if anything, to contribute to the financial crisis.
Warren falsely claims, â€œFrom subprime mortgage loans to small dollar loans, [non-banks] showed how to wring high fees and staggering interest rates out of consumer lending. Their fine-print contracts, and new tricks and traps, transformed the market.â€
I presume she refers here to payday loans. Clearly, Ms. Warren has not set foot into a payday loan store. If she had, she would first learn that all fees on payday loans are disclosed in large text per TILA requirements. I and others have written many times about the false characterization of payday loan fees as â€œhighâ€ or â€œstaggeringâ€™, and wonâ€™t reiterate that here. In addition, payday loans have no â€œtricks and trapsâ€. You take a loan, itâ€™s due on your next payday. Itâ€™s that simple, and everyone who uses a loan knows that.
She is right on one thing: the only transformation payday loans have engendered is a positive one: offering another form of short-term credit.
More hyperbole from Warren: â€œDespite widespread agreement about the problem, the U.S. has never made a sustained, systemic effort to regulate non-bank lenders.â€
The only people in widespread agreement that a problem exists are people who are opposed to payday loans on ideological grounds, because the facts are not on their side. This includes grandstanding politicians, corrupt charities, and their puppets.
For someone in charge of TARP, I guess sheâ€™s been too busy to read state statutes. If she had, sheâ€™d discover that payday loans are quite heavily regulated in almost all the states they are offered. In the few states where they are unregulated, the lenders have proven that they can self-police themselves, and most are members of CFSA, which requires them to adhere to Best Practices.
She places the blame for these regulations on the lenders, and effectively calls state legislators stupid and lazy for daring to let the lenders make their case via lobbyists.
Paging Prof. Warren â€“ did you consider that state legislators passed enabling legislation because they realized that payday loans actually help people?
Warren claims, â€œthe consumer finance industry succeeded in rewriting state interest rate regulation to allow for massive increases in allowable effective rates – even when the advertised rate looks far lower and obscures the true cost of credit.â€
This is outright fiction and Prof. Warren should be ashamed of herself. This kind of argument would get her tossed out of court. The advertised rate is exactly what it is â€“ expressed both in absolute dollar terms and, as required by TILA, in APR terms (even though customers never use APR as a method to gauge the cost of credit). The true cost of credit is stated unequivocally. Again, Prof. Warren has obviously never set foot in a store.
If these are the reasons that Warren demands for federal regulation of payday lenders, then sheâ€™s just had her case tossed out of court. This kind of talk from a Harvard Law Professor is unconscionable. The woman is not only ignorant, she has been given a venue in which to voice this ignorance.
I call on President Obama to create an Anti-Stupidity Czar, whose first job will be to ban Prof. Warren from publishing foolish statements in the future.