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Legislation Would Deprive Consumers of Necessary Credit Options

Legislation Would Deprive Consumers of Necessary Credit Options

Let’s call it the “Recurring Nightmare Before Christmas,” as Senators Jeff Merkley (D-OR), Doug Jones (D-AL), and Tom Cotton (R-AR) reintroduce the Unsolicited Loan Act, a bill that would ban “live” checks.

Activists and supporters of the bill claim that the legislation isn’t about installment lending as a category, but about convenience checks as a marketing tool. They claim the checks that are mailed to consumers’ homes are somehow confusing or misleading, and that some people who receive them won’t realize they are a loan and not “free money” if they cash them. But convenience checks already comply with a litany of federal and state disclosure requirements and truth in lending laws. They state in bold lettering “THIS IS A LOAN” and spell out their terms transparently. There is no “fine print.”

Consumers who receive the loan offer, often referred to referred to as “live checks,” loans by mail, or prescreened offers of credit, can easily opt not to activate the offer. However, for those who choose to participate, these loans can help families needing a small infusion of money. Many consumers can use a few extra dollars for unexpected expenses, car repairs, medical bills, or home repairs. Loans by mail give them an easy option to gain some money when needed, with easy payback terms and instructions.

More importantly, there are no tricks. These are fully amortized loans, meaning borrowers can pay them down according to a fixed schedule with regular payments. These are “unsecured” loans, meaning lenders do not use a borrower’s car as collateral.

If convenience checks were really the predatory, misleading product their critics make them out to be, you would expect a huge log of complaints about them in the databases kept by the Consumer Financial Protection Bureau, but that’s not the case. Less than 100 out of two million complaints in nearly ten years – less than 0.0001% of complaints – were filed at the CFPB. By contrast there were more than 22,000 complaints about federally backed student loans over the same period.

Proponents of restricting credit access rarely offer alternatives to the millions of unbanked Americans who will suffer from policies that cut off access to credit. If Congress is truly concerned for the financial well-being of working-class Americans, they should reject attempts to limit consumer access to affordable credit, and trust people to make their own financial choices. Overregulation of this process would make things worse, not better for consumers.

December 17th, 2019

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