Monday, May 21, 2007

Stop Fleecing Poor Americans

A nice, succinct debate in Newsweek about whether the government should restrict what car sellers, pay day lenders, tax preparers, etc. can offer to poor Americans.

Nouriel Roubini says safeguards are critical, because these unscrupulous people are ripping the poor off and taking advantage of their financial naivete. Tyler Cowen says people should be able to do what they want, and outlawing these types of legal exchanges would simply move the activity to the illegal realm, with worse consequences for the poor.

I'm reminded of the law (I think it was in New Jersey) to ban rent-to-own schemes. Basically, when someone rented a VCR for $20 a month for more than 24 months, they were given the VCR (they had already paid many times its purchase price in rental fees). The government banned this practise for the same reasons Nouriel states in his position, so the the companies stopped giving the VCR to their customers after 24 months, they just kept on renting it.

(btw. I'm getting all the facts wrong in the above. It may not have been VCRs, or NJ, or $20/month, or 24 months. But the point stands). You can read more about rent-to-own here, and from the FTCs site here.

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