The ultimate command-and-control leviathian - the U.S. military/Congressional complex - has gotten a ceiling placed on interest rates that can be charged to members of the armed forces.
The cap is 36% per year. That's inclusive of fees, unlike most quoted interest rates.
That sounds like a ceiling that is high enough to avoid being binding. However, it's target is payday loan operations, that routinely charge several hundred percent per year.
That seems exhorbitant, but it amounts to about 5% a week with compounding. That still seems exhorbitant, but how much would a friend charge you to borrow $1,000 for a week? Fifty bucks doesn't seem unreasonable, and even if you just agree to buy them a nice restaurant meal for their trouble, you're in that range.
Anyway, the point here is not to grouse, but to put on our economics-in-one-lesson hats and figure out what the unintended implications of this policy are.
The easy part is that those companies are in business to make money, and this will inhibit their ability to do that.
Some of them will close up shop.
Others will place more enforcement pressure on debtors to repay. More enforcement pressure on (potentially heavily armed) debtors (with weapons training).
But, here's the big secondary effect I see. Some soldiers will be unable to obtain credit with the 36% cap, but some will. How soon until there is a secondary market with good credit soldiers loaning to bad credit soldiers at rates much higher than the official cap? Of course, they'll have to hide that behavior, and employ strong-arm tactics to ensure repayment.
The BS here is very deep. Catch this one:
Pentagon officials and consumer advocates pushed Congress this summer to help the many thousands of service members incurring excessive debt, some of whom have lost security clearances as a result ...
Forgive me, but isn't the point of security clearances to eliminate people who can be compromised? Am I now to understand that we want to increase the number of security risks in sensitive positions?
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