Opinion: Illinois is Manipulating the Credit Market to Disastrous Effect; Missouri Should Learn From Their Folly
As a proud Missourian and Cardinals fan, nothing excites me more than seeing our neighbors to the east suffer.
Unfortunately, outside of the Cardinals’ inevitable complete dominance sometime between spring training and the end of June, regular opportunities to celebrate Missouri’s superiority over other states are often limited to the NL Central. That is, of course, unless you count our beer, our hockey, and now our fiscal policies.
I’ll admit, fiscal policy isn’t often what springs to mind when you think of rivalries between neighboring countries and their sports teams, food habits, and other sundry quirks and preferences. And while I can spend all day praising Imo’s and La Pizza over deep dish Chicago-style “pizza” (aka “trash”), fiscal policy is proving to be the latest area in which Illinois is claiming a self-inflicted wound, which it takes down another pin or two under the show-me status.
Until March 2021, Missouri had relatively similar consumer credit laws to Illinois. These laws were consumer-friendly, pro-free market, and encouraged robust competition that ensured all residents had access to credit—not just those with wealth or good credit. That changed after Illinois imposed a 36% interest rate cap on consumer loans.
This was a market manipulation hit that sent shockwaves through the state’s economy and failed ordinary Illinois residents.
A new study, authored by prominent economists at Mississippi College, the Board of Governors of the Federal Reserve System and Mississippi State University, quantifies the pain this price control law has inflicted on the Prairie State. By comparing the financial well-being of Illinois subprime residents to that of their Missouri counterparts after Illinois implemented its 36% interest rate cap, this study — the first of its kind to establish such a direct correlation — found that the impact of the interest rate ceiling were catastrophic in every respect.
First, credit availability in Illinois has shrunk by nearly 50%, meaning half of the state’s loan seekers now have little or no access to credit. This presents a real crisis for Illinois consumers when we consider that these loans are typically used during a financial shock such as a medical emergency, car repair, or other unexpected expense.
Additionally, 89% of Illinois respondents said their financial situation worsened after the interest rate cap. After all, a staggering 79% of Illinois consumers wish they could borrow as best they could before March 2021. While cap proponents continue to somehow present these results as a good thing, those who have since banned the use of their so-called proponents’ products seem to disagree.
I’ve worked in politics long enough to see how the political aspirations of our most liberal lawmakers often create problems for working people, and financial regulation is no exception. Progressives in state houses from Delaware to California view rate cap laws as easy political gains to placate their liberal base, because the truth is that suburban liberal elites generally don’t use emergency credit. “How could anyone use these products,” they seem to ask with an implied sense of condescension, putting their privilege on the table for all to see while betraying those they supposedly care about.
Meanwhile, special interests and regulators in Washington, DC have begun conspiring with attorneys general to pressure these companies to shut their doors by making it too expensive to operate. When that happens, Illinois is an example — and a warning — of how consumers will suffer.
Unlike the Cardinals’ inevitable outburst against the hapless and pathetic Cubs, the elimination of major financial decisions from the dispute is no laughing matter or cause for celebration for Missouri consumers. By the looks of it, Missouri’s pro-consumer fiscal policies set us apart from – and above – our neighbor to the east. It would be a damn shame if we swapped that away.
Gregg Keller is President of the Missouri Century Foundation (@MissouriCentury).