Good intentions

When you restrict the interest rates at which people may hire money, or set more generous terms on which they may do so (such as refusing to allow them to agree to binding arbitration), you make it less attractive for bankers to lend; and the least attractive borrowers--the young, the poor, and those with chequered credit histories--drop out of the credit pool.

This is, for some consumer advocates, the not-so-hidden paternalistic agenda. It certainly seems to be Ms Warren's; while some of her proposals focus on disclosure, most alter the terms under which lenders may offer their wares. And some people--the people who cannot be trusted to use credit without hurting themselves--would be made better off by it. The problem is, the majority of people in the subprime market can be trusted to use credit; they are living in their new homes, driving their cars to work, and not flirting with bankruptcy. Unfortunately, borrowers are no better than regulators at divining which young, poor, or previously profligate people will default; their only option, when these variants on usury laws are enacted, is to cut off the subprime market.

For those who could use the money to buy a home, or need the money to tide them over an unexpected financial emergency, the result is that they are made much worse off. Like so many laws designed to help the unfortunate, this offers help entirely at the expense of other people in the same boat. Note that Ms Warren is not proposing anything that will make it harder for her to get a mortgage. The burden will fall on the young and the poor, whom Ms Warren, and perhaps Mr Salmon, have decided cannot be trusted with credit because some of their number will abuse it.