"Predatory" Lending: Senate Floor Debate Remarks by Tom McClintock

"Predatory" Lending: Senate Floor Debate Remarks by Senator Tom McClintock.

One of the most common observations down through history is how remarkably prosperous are free societies. What is the mechanics of that prosperity?

Two people with very different self interests come together for their mutual betterment. They each assess their own needs, their own risks, their own rewards and decide independently whether the transaction benefits them.

And for the transaction to take place, each party must independently conclude that it is in their self-interest to do so. Otherwise, there is no agreement.

This bill speaks of "predatory lending." But every person, from the weakest to the most powerful, has the same absolute defense against a bad loan. It is the simple word, "No."

"No. I'm sorry, but the price is too high. The terms are not acceptable. I think I can get a better deal elsewhere. No."
Now it is true, that sometimes we are careless in entering into agreements. Sometimes we make mistakes. Sometimes we leave that agreement and realize it wasn't in our best interest.

But we stand by those agreements, because if we didn't, agreements would be meaningless.

Free societies are prosperous because people are free to make these judgments for themselves, according to their own best lights. And nine times out of ten, both parties leave the agreement with more of value to them than they brought. The price we pay for that freedom is that we stand by our agreements, even the dumb ones, because if we don't stand by our dumb deals, we lose the freedom to make all of our smart ones.

It is important to understand the practical application of this bill. It says that loans under $250,000 cannot be made but under a long list of conditions that we impose, without the slightest understanding of the unique circumstances of the two parties negotiating the loan.

Let me illustrate by using a scenario Senator Murray raised in committee. Suppose I go to a bank and say, "I have a dream. I've worked in a sandwich shop for 10 years for peanuts, but the owner's putting it up for sale and now I have the opportunity to buy it. I need a loan. I'm willing to risk my house as collateral. I know how to run that shop - I can make ten times what I'm making right now. Will you give me the loan?"

Right now, the loan officer has the freedom to say, I don't know much about running a sandwich shop, but if you're willing to put your house up as collateral, I'll make you that loan.

Not under this bill. Under this bill, the loan officer must say, "You're dream has been deferred permanently by the government. You will never own that sandwich shop, because you will never be able to prove beyond reasonable doubt that you can make the shop pay. You probably can. But if it turns out that you can't, not only can I not get my money back, but I'll be personally liable for $50,000 in civil damages. And I'm sorry, but that's a risk I'm not willing to take."

And for that sandwich shop, substitute every other dream that every Californian has to be their own boss, to better their
own condition, to balance risks against rewards and have the opportunity to succeed. And now dash every one of those hopes. And then take the 14 other provisions of this bill, and apply them to 14 other classes of dreams, and dash every one of those as well.

It's easy. Just vote yes.

Loans for those who need them the most will become very hard to find.

It doesn't mean the money won't be loaned. It just won't be loaned in California.

It will simply be loaned in other states, to build other sandwich shops. And it's true, a few people will make bad agreements and they'll lose their homes. But the vast majority will make wise agreements and they'll achieve their dreams. Just not in California. How sad.