Stupid with money

This morning, I heard Massachusetts District Attorney Martha Coakley complain about "people victimized by predatory lenders." Meanwhile, Congress is moving to firmly close the barn door on the escaped horse of the mortgage crisis by passing the The Mortgage Reform and Anti-Predatory Lending Act of 2009. Here's a snippet from the Los Angeles Times:

The bill would also impose a federal "duty of care" standard requiring loan officers to offer applicants terms and rates that are "appropriate" to their income and ability to repay.

Wow. Well, thank heaven we now have federal law in the works to make sure that banks do what they should have been doing all along. Because if banks are reckless with their lending practices they could lose money get a government bailout.

Maybe the time has come for a national curriculum on personal finance. Here's lesson #1:



But since we've now established that it's the government's role to keep Americans from doing dumb things with their money, shouldn't we outlaw payday loans?

Payday lending businesses provide short-term cash to borrowers who pay a fee and give a post-dated check to the lender, which is typically cashed after the borrower's next payday. Payday lenders charge interest rates of 400 percent or more on an annual basis. Since most loans are quickly repaid, the actual rates paid are much lower than that.

How about rent-to-own businesses?

Although installment payments are low -- usually less than $20 a week -- the charges at these outlets are far higher than the interest rates charged by banks or credit-card companies, often running as much as 200 percent. As a result, products end up costing three or four times their retail price.

How about federal intervention against extended warranties?

This holiday season, shoppers are expected to spend over a billion dollars on extended warranties for laptops, flat-screen TVs, other electronics, and appliances.

And almost all of it will be money down the drain.

Retailers are pushing hard to get you to buy extended warranties, or service plans, because they're cash cows. Stores keep 50 percent or more of what they charge for warranties. That's much more than they can make selling actual products.

And so on. Look, people make poor financial decisions because they don't understand basic concepts like interest and debt rollover. And there are many in Congress who are willing to let the banks do whatever they want because they accept huge sums of campaign contributions. But I'm not at all convinced it's the role of the federal government to make those decisions for Americans. Better to teach citizens a little fiscal common sense than submit to another expansion of the nanny state.