Article: Bernie and AOC Are a Credit Risk

Here’s a terrific OpEd piece from the WSJ:

Bernie and AOC Are a Credit Risk:  They would cap interest at 15%, while letting the Post Office write loans.

By The Editorial Board

Congress’s two loudest socialists are teaming up to take on credit-card companies—while applying their familiar analytical skills to the economics. Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez last week proposed capping interest rates on consumer loans at 15%.

“There is no justifiable reason that a person—no matter their background—should be charged an interest rate higher than 15%,” AOC says. The pair argue that today’s median rate on credit cards, 21%, is too high given that banks can borrow from the Federal Reserve at less than 2.5%.

This is misleading, since credit cards are primarily payment networks. They process countless $5 transactions, send monthly bills, offer 24-hour customer service, scan for fraud, resolve disputes with merchants, and more. The cost of daily operations is high. Yet swiping is free for millions of Americans who pay their balances each month.

Price ceilings on any good or service inevitably reduce supply, and credit is no exception. Good luck trying to get a Visa or Mastercard under this plan, unless your credit score is stellar. Annual fees would return for basic cards. Recall what happened after Democrats in 2010 capped debit-card “swipe fees” on merchants. Banks quit offering free checking and raised monthly fees for millions of nonrich customers.

Bernie and AOC want to kill payday lending in particular. This would simply push people who need short-term cash toward pawnbrokers or organized crime. “Today’s modern-day loan sharks are no longer lurking on street corners breaking kneecaps to collect their payments,” Mr. Sanders says. “They wear three-piece suits and work on Wall Street.” It never occurs to him that the availability of legal loans is what helped to put Louie Legbreaker out of business.

The socialist duo does claim to worry about keeping financial services widely available. That’s why they’ve added another proposal: Let Americans get checking accounts, or even “low-interest loans,” from their local branch of the U.S. Postal Service (USPS). The word “boondoggle” can’t do this plan justice.

The Postal Service lost $3.9 billion last year. Its unfunded liabilities for pensions and retiree health care are on the order of $100 billion. Its customer service is often abysmal, as you may have noticed. Whenever it contemplates closing a post office or stopping Saturday delivery, politicians from both parties squawk to high heaven.

Yet the USPS, without deep experience in financial underwriting, is supposed to set up ATMs and lend money? If these new “affordable banking options” produced losses, taxpayers would pick up the tab. Politicians like Bernie and AOC, in their fight for the dispossessed, would push the postal bank to lower fees and ease standards. That worked great in the mortgage business.

This plan won’t get through the current Congress, but it’s another sign of the Democratic times. In the 2020 presidential primary, Mr. Sanders is polling second behind Joe Biden. He will probably try to present Mr. Biden as a flunky for finance. In response, Mr. Biden could explain that Mr. Sanders wants to put a pawnshop on every corner.