According to Kathy Kraninger, Director of the Consumer Financial Protection Bureau, help for beleaguered debtors is in the offing. The new rules would limit the number of calls that can be made to debtors by collectors.
The collectors would be required to furnish the debtors with their options, ability to dispute claims made against them, provide more information to them, etc.
The last set of rules governing this relationship was set by the CFPB in 1977, over forty years ago. What has changed, requiring an alteration in the rules, in the view of this government agency?
The main explanation is vast improvements in communication technology, compared to that date if far off history. Collectors can now access debtors in a myriad of ways unavailable to them in the last century. It is time, it is past time, to re-right the balance between the two sides is the motivation behind the recent promulgations.
At first blush, this seems like a God-send to debtors who are disproportionately poor (we are not now talking about massive corporations that pile up zillions of dollars of debt; this new ruling concerns households and single individuals). But a moment’s reflection will establish they are no such thing.
For when rules make it more difficult to collect money owed by the impoverished, less credit will be offered to them in the first place. Well, legitimate loans. The poor will either have to do without, or, interact with a very different type of lender: the leg-breakers, who are beyond the CFPB to sanction.
Out of the frying pan and into the fire is one way to characterize this new initiative. Another is what economists call “unintended consequences.” Posit that the hearts of this government agency are pure. They really intend to help the down trodden. Still the road to hell is paved with you know what.0
The grand daddy of this phenomenon is airline seat belt legislation for children. On one occasion, an aircraft, while still on the tarmac, had to come to an abrupt stop so as to avoid a collision. A baby sitting on his parent’s lap was killed as a result, when he crashed into the back of the seat in front of him. A presumably well-meaning legislature enacted a rule requiring a separate seat, and a seat belt, for all infants.
Well and good? But this raised the price of a fare for a family of two parents and a baby by 50%. In turn, many such folk were led to travel by highway, not air. But the former is far more dangerous per passenger mile. The upshot? More youngsters perished due to this “humane” enactment.
The same unintended consequences phenomenon occurs in the case of the debtors. Make it more difficult to collect, and fewer loans will be made, and more of them will end up in the far more dangerous black market.
Walter E. Block is Harold E. Wirth Endowed Chair and Professor of Economics, College of Business, Loyola University New Orleans, and senior fellow at the Mises Institute. He earned his PhD in economics at Columbia University in 1972. He is the author of more than 600 refereed articles in professional journals, two dozen books, and thousands of op-eds (including the New York Times, the Wall Street Journal and numerous others). Prof. Block counts among his friends Ron Paul and Murray Rothbard. He was converted to libertarianism by Ayn Rand. Block is old enough to have played chess with Friedrich Hayek and once met Ludwig von Mises, and shaken his hand. Block has never washed that hand since. So, if you shake his hand (it’s pretty dirty, but what the heck) you channel Mises.