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EDITORIAL: Obama’s end run
He bypasses Congress to go after payday lenders
Question of the Day
Having the legislative branch enact laws, to be signed by the executive (as set out in the Constitution), has become a quaint concept under President Obama. From immigration to health care, laws are selectively enforced with exemptions and waivers generously granted to the favored not-so-few. Anyone falling into disfavor at the White House can suffer their business criminalized without discussion or debate. (If this way of governing is good enough for Chicago, it's good enough for everybody else.)
Consider short-term lending, a $20 billion industry that offers credit to consumers not served by big banks and Wall Street firms. Payday lenders offer millions of Americans who might otherwise be tempted to turn to loan sharks access to small-dollar credit that can cover emergency needs, such as an unexpected car repair or hospital bill. For families getting by paycheck to paycheck — something increasingly common in this stagnant economy — it can be a lifesaver, though at a steep price.
The president doesn't like payday lenders, and neither, particularly, do we. But rather than seek changes by legislation or an open rule-making process to propose reform, the White House simply cracked down on payday lending. The Federal Deposit Insurance Corporation, Department of Justice and Federal Trade Commission recently notified banks and payment processors to stop processing transactions for short-term online lenders through the payment process known as the Automated Clearing House, which handles most credit card transactions and direct debits. Being shut out of this network means a short-term lender can't set up an automated payment for a loan when payday arrives.
Payday loans are legal transactions, authorized by the customer, about 12 million of whom used such services last year. Offering an unsecured loan necessarily involves assuming a substantial risk of default; consequently, the interest rate will range from high to very high to outrageous. The annualized interest rate can be as much as 1,000 percent, but the great majority of such loans are repaid within two to four weeks. The outrageous interest rate is an incentive to pay the loan off quickly.
The administration wants to "protect" consumers from payday lenders. Consumers who don't have bank accounts or good credit are often more concerned about an angry bill collector knocking at the door. In fact, the same government that's only looking out for the best interests of the little guy is sometimes the collector on the front porch demanding payment for back taxes.
Denying payment processing for this disfavored category of loans can mean that someone loses a car to the repo man or is evicted from his home. What's more troubling is that the administration's tactics could easily be extended to exclude other unfavored businesses from payment processing, and for purely ideological reasons. Perhaps a company that's not "green" enough would lose the ability to make direct deposits, or a bank will be pressured to withdraw service from small businesses that won't participate in Obamacare. It's the precedent that's troubling.
The system of checks and balances was put in place to prevent such abuses. Mr. Obama is determined to lend himself as much power as he can. If Congress won't assert its constitutional authority by blocking such behavior, it will never retrieve the power and authority the Constitution gave it.
The Washington Times
About the Author
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