Congress is now so bent on overregulation that is that it’s getting a plea for restraint from George McGovern, the 1972 Democratic presidential nominee. In the Wall Street Journal, he warns against rewriting the terms of subprime mortgages to benefit current borrowers, noting that most such loans are “neither delinquent nor in default.” (Congressional proposals now seek to freeze or cut interest rates for many subprime borrowers with adjustable rate mortgages, even if they profited from the extremely low introductory rates they received, can afford the new, higher rates they now will be charged after the expiration of those introductory rates, and would ultimately end up paying less overall than borrowers who obtained fixed-rate mortgages).
He notes that paternalistic regulation to protect current borrowers will backfire against future borrowers, as it often does against consumers. (John Berlau discusses how a mortgage bailout will harm borrowers and the economy here, here, and here). McGovern points to how heavy state regulation of the health-insurance market makes health insurance coverage unaffordable for many uninsured people, because “many people can’t afford the gold-plated health plans that are the only options available in their states,” and because state insurance commissions forbid people to buy less expensive plans across state lines. (Eli Lehrer links to a solution to this problem that would benefit consumers with lower prices and more choices — Optional Federal Charter — here).
McGovern also notes that banning payday lending can backfire by forcing “people in need of immediate money” to pay for current expenses with money they don’t have through more costly means like “skipped credit card payments” and “bounced checks.” (John Berlau explains how payday lending bans can backfire against consumers here).