My co-author on this paper on The Effect of the CFPA Act of 2009 on Consumer Credit, David Evans, has a great post over at Catalyst Code on the importance of access to consumer credit during tough financial times. Here’s the key paragraph:
Unfortunately, an awful lot of the proposals that are being floated in Washington these days focus on making it harder for people to borrow—sometimes indirectly as in the case of the CARD Act that was passed by making it more expensive for card issuers to lend money, and sometimes directly as in the case of the proposed CFPA Act of 2009 which was developed by law professors who believe quite earnestly that a lot of consumers just shouldn’t be borrowing money. Josh Wright and I have shown under plausible assumptions that the CFPA would raise interest rates at least 1.6 percentage points and kill more than 4 percent of new jobs as a result of denying credit to the new small businesses that account for the preponderance of new jobs in the economy. See The Effect of the CFPA Act of 2009 on Consumer Credit. We argue that the CFPA Act would harm the economy in the long run but more importantly it would impose yet another lead weight on an economy struggling to recover. I’d like to propose a moratorium on any and all legislation that’s likely to reduce the supply of credit to consumers and especially small businesses. We should consider any and all proposals after the economy recovers. For now we should focus on government initiatives that will help reopen the credit lines that consumers and small businesses depend on.
Now’s not the time to kill credit.
Go read the whole thing.