In Defense of Debt Collectors

June 15, 2017 at 9:22 am Leave a comment

My gripe with consumer advocates is that they posit a kumbaya world in which there are no tradeoffs between consumer protections and access to credit. The CFPB scrutinizes debt collection practices and payday lending, and Congress mandates that lenders offer “Qualified Mortgages” without any acknowledgement of the fact that these restrictions will result in fewer people owning houses, fewer people in desperate need of short-term financing getting a loan and an increase in the number people who could but simply don’t want to repay a debt getting more legal protections.

It’s not that the evidence isn’t out there, it’s that they choose to ignore it. Recently the New York Fed published a paper which analyzed the impact on state laws regulating third-party debt collectors and the availability of credit. According to the researchers, there is “consistent evidence that restricting collection activities leads to a decrease in access to credit and a deterioration in indicators of financial health.” Moreover this impact is concentrated primarily among borrowers with the lowest credit scores.

By the way, their finding are not some research anomaly but are broadly consistent with other research findings. This will come as no surprise to those of us in the credit union industry. The more members consistently and promptly pay back their loans, the easier it is to keep the branch lights on and the more money there is to provide reasonably priced loans to other members.

This is common sense, but all too often it’s a point that legislators and regulators just don’t get or choose to ignore. New York and other so-called progressive states reacted to the mortgage crisis by providing delinquent homeowners with a panoply of additional protections ranging from 90 day pre-foreclosure notices and stringent lender affidavit requirements, to making larger lenders responsible for maintaining abandoned property on which they haven’t foreclosed. In isolation, all of these are defensible and well-intentioned, but in the aggregate they make home-buying a more expansive proposition for those on the lower end of the economic ladder.

 

Fed raises rates

As expected, the Fed raised the Federal Funds Rate again yesterday. I wanted to pass along this article from the Economist arguing against the Fed’s latest move.

Entry filed under: econony, General. Tags: .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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