THE LIBERTARIAN ENTERPRISE
Number 481, August 17, 2008
"Yep. We've sunk a long way, baby."
Attribute to The Libertarian Enterprise
Remember the word usury? I don't think I've heard or seen it used to describe the practices of American bankers since the 1980's.
The last time Congress tried to control interest rates the bankers' lobbyists argued that they would have to stop extending credit to higher risk clients which would cause a reduction in consumer sales. Congress failed to act to control interest.
Libertarians are not real fond of regulation of any kind. However, banks are quasigovernmental organizations, especially interstate chain banks. While it would be wrong to argue for governmental regulation to get rid of some of the abuses that hurt consumers and in fact have led to the credit crunch, we could always look at what some of these abuses are. If we know what they are perhaps we can look for banks that engage in these practices less than others.
A. Usury. 33% interest rates (or higher) on credit cards is ridiculous. If someone is so likely to fail to pay that he has to offer to pay more than 21% per annum to get credit he'll default at anything over 25% interest. Meanwhile credit worthy clients are choking on higher interest than what they should pay. To top it off these bad debts are carried as assets when the bank in question borrows money and sets itsef up to go broke at the depositors' (that's us) expense.
Please note that I am not talking about banks raising interest as a penalty for not making payments in a timely manner.
The second issue is the cute habit banks have gotten into of selling people's notes back and forth. This hurts consumers because this leads to sudden raises in interest rates and fees when the new bank buys their notes. At the very least the new bank should be bound to respect the old contracts. Secondly, it's easy to give a probable dead beat a break he doesn't deserve when you expect to sell off his note before he defaults.
There are other dubious practices that banks engage in. These institutions rely on government regulations to guarantee their profits. It would be wrong (or at least inconsistent) for libertarians to to ask them to submit to regulation to protect consumers. However, perhaps we can start looking for bankers who don't engage in unethical and ultimately unprofitable practices and take our business to them.