FTC Commissioner Slams Lending Restrictions

Regulations on lending could harm consumers, according to Joshua Wright, one of the five Commissioners of the Federal Trade Commission and a leading economic scholar. Wright recently released a comment on December 26, 2014 that lays out the case for caution in imposing limits on interest rates and other restrictions on consumer lending.

His comments were specifically related to the Defense Department’s proposed amendments to the Military Lending Act. According to Wright, “it is my view that the totality of the evidence strongly suggests that further restrictions may cause serious harm to service members.” His arguments, however, are applicable to various attempts to regulate payday, automobile, and other lending programs and could point to a potential squabble between the FTC and the CFPB, both of whom have consumer protection responsibilities.

Wright says, “Decades of economic research find that an inevitable result of interest rate ceilings is to restrict access to legal credit for consumers, especially higher-risk borrowers.” Interest fee caps can, he points out, push consumers into bad types of lending such as turning to loan sharks, where consumers have even less protection.

Defending payday loans, Wright claims that “studies find that, on average, access to payday loans and other products help consumers smooth negative expenditure shocks, avoid more onerous forms of credit, alleviate financial distress, and increase job retention. The evidence suggests that some consumers will face adverse consequences if these forms of credit are restricted.” He cites research that shows that payday loans are less expensive than overdraft and returned check fees. Consumers such as military personnel would be pushed to those more expensive forms of credit, he suggests, if their access to other forms of credit were restricted.

Wright has a Ph.D. in economics and a JD from the UCLA. He is on leave from George Mason University where he is a professor at the law school and economics department. A Republican, he was nominated to the FTC by President Obama and, after being confirmed by the Senate, joined the antitrust and consumer protection agency in September 2013.

The comments was posted on the FTC’s website and is available here.