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George Bailey Has Left the Building

Mar 29th, 2012

It used to be that you knew your banker by name. Loans required the filling out of a few forms but mainly the transaction was based on trust. And if you wanted a loan a bit too rich for your financial situation, your banker would steer you toward a safer course, a more affordable loan that you could pay back.

A banker like George Bailey (Jimmy Stewart in "It’s A Wonderful Life") could even stave off a bank run. Remember George calming down the crowd that rushes into the Bailey Savings and Loan:

"You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house; that’s right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others… We’ve got to stick together…."

This kind of banking was in everyone’s interest. The banker had a stake in a thriving but stable community and the borrower realized that patience and hard work could eventually pay off. In the meantime, that dream home could wait.

Of course, this nostalgic view of America’s past has never held true in all times and places. Along with those families who sank deep roots in sleepy little towns, there have always been those restless souls blown like tumbleweeds westward, speculating on land, and looking for the next bonanza.

The roaring twenties was followed by the Great Depression, the booming 1990s led to the financial crash of the 2008. It seems like the lessons learned by one generation have to be relearned by the next one.

Writing in May 2008, several months before the financial crash of that year, the Kentucky farmer and writer Wendell Berry observed that "the commonly accepted basis of our economy is the supposed possibility of limitless growth, limitless wants, limitless wealth, limitless natural resources, limitless energy, and limitless debt."

In this same essay – Faustian economics: Hell hath no limits – Berry opined, "Our national faith so far has been: ‘There’s always more.’" Yet he argues that "limitlessness" is an attribute only of God, not mere mortals. This is a message Berry has conveyed for years, just as the popes for years have warned about the evils of materialism. But during boom times this kind of old-fashioned advice can seem excessively cautious, even un-American.

After a financial crash, when people assess the damage done to families and communities, two competing remedies seem to emerge. One argues that people should be more responsible, while the other suggests the need for more government regulation. Few seem to consider that the patient might need an application of both remedies.

No system of regulation will work without ethical people. There are ways to "game" the system, to cheat and fraud investors and get rich quick. In banking, we could use a few more George Baileys. Yet depression-era bankers like George Bailey were not enough to restore confidence in the banks. It took new federal laws, such as the establishment of the Federal Deposit Insurance Corporation (FDIC) and rules to break apart commercial from investment banks to put the financial sector back on a stable footing.

The other day I was talking to a payday lender who said he was committed to truly helping his customers; he didn’t give out loans to just anybody. I have no reason not to take him at his word, having known him for quite some time, but he is not the problem. In fact, if people were angels, no rules would be necessary.

Sure, government regulation can be excessive, but that is certainly not the case with the Wild West version of payday lending now permitted in Missouri. The state has become a Mecca for payday lenders. Under Missouri law, a borrower who cannot repay a payday loan can renew it six times, so long as he or she pays interest charges. No state bordering Missouri allows even one renewal. Renewing the loan every two weeks just puts the borrower deeper into debt.

The state’s law allows a borrower to owe interest charges amounting to 75 percent of the original loan amount. On a $500 loan, a borrower can end up paying $375 in interest charges. Making matters worse, a borrower may have more than one loan outstanding at the same time by obtaining those loans from different lenders.

Other states, such as Florida, have found ways to regulate the payday loan industry so that lenders make a profit while borrowers find loans on reasonable terms. But Missouri lawmakers have so far resisted serious efforts to regulate the industry, which serves more than 2.4 million customers a year.

One can look at all this and just say "let the borrower beware," but at some point this free market nostrum must be set aside for the common good. Pope Benedict XVI has reminded us that the market is a human invention and "precisely because it is human, it must be structured and governed in an ethical manner" (Caritas In Veritate, par. 36). Governing the free market requires both ethical people and rules of ethics.

Once again, as in so many past years, the Missouri General Assembly appears poised to do nothing to address the predatory lending practices too common in our state. There is a bill that might have some chance of yet moving forward – SB 467, sponsored by Sen. John Lamping (R-Clayton) – but even its modest provisions might be too much for the payday loan industry to accept. And if the industry is not on board, no bill will move forward, if the past is any indicator of the future.

While lawmakers might be shy about tackling reform of the payday loan industry, private citizens are not. As this Good News goes to press, an effort is underway to collect sufficient voter signatures to place a reform proposal on the ballot for the Nov. 6, 2012, general election. Meanwhile, Catholic agencies and other not-for-profits are developing emergency loans as alternatives to the predatory lending now offered in Missouri. Don’t count George Bailey out just yet.

Mike Hoey is the executive director of the Missouri Catholic Conference. This article first appeared in the March 2012 issue of the MCC Good News.

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