The financial markets, most particularly lenders, are beset with government interference at all levels. At the federal level, there are some constitutional issues involved that nobody in Washington seems to care much about - more on that in a moment. Of particular concern to a lot of politicians, most especially Democrats, are short-term lenders and other lenders specializing in high-risk clients; these lenders often charge high interest rates for short-term loans, including so-called "payday loans," as well as some of them dealing with people with issues like poor credit histories.
That's something of an inevitability; lenders are essentially betting they will be paid back, and if there's a chance of default, the initial terms will be less favorable, including higher interest rates.
This brings us to Senator Elizabeth Warren (D-MA) and a company called Opportunity Financial, or OppFi.
U.S. Senator Elizabeth Warren (D-Mass.), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Travis Hill, Chair of the Federal Deposit Insurance Corporation (FDIC), Jonathan Gould, Comptroller of the Currency, and Kevin Warsh, Chair of the Federal Reserve, to express concern regarding Opportunity Financial’s (“OppFi”) application to acquire BNC National Bank, a national bank subsidiary, and become a newly formed bank holding company despite the company’s history of predatory lending.
“Though OppFi brands itself as a lender that ‘empower[s] everyday consumers to overcome financial hurdles and build long-term financial stability,’ a closer look into its business model reveals persistent, predatory financial strategies. OppFi charges up to 195% APR on personal installment loans [and] OppFi’s charge-off rates (when a lender determines a debt is unlikely to be collected) exceed 55%. Notably, a 2021 filed by the D.C. Office of the Attorney General alleged that ‘OppFi’s underwriting model ‘anticipates that up to one third of their borrowers will be unable to repay their loans and default,’’ wrote Ranking Member Warren.
Well, it stands to reason that any company willing to lend to a market when the default rate is above 50 percent, and that's a rather shocking level of risk to absorb, is going to seek a higher return up front. Any federal regulation, and Senator Warren has never seen an intrusive federal regulation that didn't give her a warm fuzzy feeling, that clamps down on these practices will have one result: The people in that category of high-risk borrowers will be completely unable to borrow from anyone, anywhere, unless they go to One-Thumb Pete the loan shark who operates out of an alley behind a bar.
California has tried this kind of regulation at the state level, only to get shot down.
A California judge has dealt a significant setback to Gov. Gavin Newsom’s consumer-finance regulators, rejecting a high-profile effort to impose more than $100 million in penalties against a major fintech lender in the latest regulatory case against what progressive activists call “rent-a-bank” schemes.
The ruling against Opportunity Financial — known as OppFi — also casts doubt on a key enforcement initiative as speculation grows about Newsom’s national political ambitions.
In a ruling issued May 19, Los Angeles County Superior Court Judge Gary D. Roberts found that OppFi did not violate the state’s lending laws as alleged by the California Department of Financial Protection and Innovation (DFPI), the agency charged with policing financial services in the state.
This, in part, has led to Senator Warren's current outrage.
Here's the onion:
Early this year, the Center for Responsible Lending (CRL), a prominent left-of-center consumer advocacy organization, released a 12-page report targeting OppFi by name.
Much of CRL’s funding has come from Herb and Marion Sandler, whose lending practices got them labeled among the “25 People to Blame for the Financial Crisis” by Time magazine. Critics of the group have long alleged its creation was an effort to distract from the Sandlers’ role in predatory lending and focus attention on financial services companies that offer competitor services to a credit union, Self-Help, also associated with the group.
So, a group claiming to be for responsible lending - it's right there in their name - is in large part funded by a couple whose names are associated with irresponsible lending. O, what a tangled web we weave.
Now, once we're all down sniggering over that last bit, we might note that in California, as in the United States as a whole, the political left seems to have little or no idea how incentives work. Any lender, no matter who they are or who their targeted clientele is, operates on a risk-based selection process. They accept clients whose risk of default is less than the odds of them repaying. There has to be some profit in it for the lender, else they won't extend the loan. And, high-risk borrowers are going to necessarily pay more, in interest rates and fees, to make up for a much higher rate of default. These are facts, and another fact is that if pols like Elizabeth Warren and Gavin Newsom get their way, there will simply be nobody willing to lend to higher-risk borrowers at all, other than the aforementioned One-Thumb Pete.
Now there are constitutional issues here, at least at the federal level. The Constitution is mute on the subject of lenders, which would mean that under the 10th Amendment, that the national government shouldn't be involved in any of this in any way. But Elizabeth Warren cares no more about the 10th Amendment than she does about the natural history of the Pacific grunion.
Once more, we see politicians meddling with markets, with the near-certainty that they would, should they get their way, make things worse than they were before. And, yes, that's how we came to be in the mess we're in. What's more, leftist Democrats will keep on peddling the same old hokum.
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