Since the day the CFPB was hatched by a proposal from Elizabeth Warren, the Bureau has been dogged by accusations that its actions do little more than damn financial institutions and products that strike government bureaucrats as worthy of censure. Accusations to this effect are of course already swirling around the CFPB’s pay-day proposal. They might be baseless, but a small point buried in the proposal gives me considerable pause: somehow, the CFPB and its powers on high think pawn-shop credit is a better deal for vulnerable consumers than deposit-advance products from regulated financial institutions. Pawn shops? Meet the Bureau’s bank of the future.

You doubt me? I’m not surprised – the proposition that getting credit from a pawn broker is better than a properly regulated pay-day lender is astonishing. Read on:

The Bureau believes that consumers may be more likely to understand and appreciate the risks associated with physically turning over an item to the lender when they are required to do so at consummation. Moreover, in most situations, the loss of a non-recourse pawned item over which the lender has sole physical possession during the term of the loan is less likely to affect the rest of the consumer’s finances than is either a leveraged payment mechanism or vehicle security. For instance, a pawned item of this nature may be valuable to the consumer, but the consumer most likely does not rely on the pawned item for transportation to work or to pay other obligations. Otherwise, the consumer likely would not have pawned the item under these terms. Finally, because the loans are non-recourse, in theevent that a consumer is unable to repay the loan, the lender must accept the pawned item as fully satisfying the debt, without further collections activity on any remaining debt obligation. 

When I mentioned this startling bit of noblesse-knows-better to my husband, he vividly recalls passing a pawnshop in Alaska some years ago and seeing a set of dentures in the window. The Bureau is right – the item was valuable but could not have been ridden to work – but I suspect a borrower sucking up his food through a straw would have preferred a pay-day loan. 

A trip near any military base, energy-production facility, or marginal neighborhood brings one up to the pawnshop window, with eBay also a good place to look at what people try to sell to raise a few bucks before forced to still more desperate measures like pawn brokers. The Bureau may think that everything the unwashed send to the shop is a gun or guitar, but a great deal of it is property – now including computers – that rational people would prefer to keep on hand as they take out a short-term loan.

Who are we to make judgments on behalf of the little people – better for you, my dear, to pawn your wedding ring than to take out a $500 loan for a week or two to feed your children. Young man, you may use your guitar to make what passes for a living, but we think you’re better off pawning it than getting by with a few bucks from a bank. Old man, those teeth aren’t really all that important from a broad social-policy perspective.

The problem with pay-day lending isn’t the product, it’s the purveyors. Small-dollar lending was, is, and will be a dangerous business for borrowers in which unscrupulous lenders prey on the desperate. The more the Bureau issues monstrous rules of interminable length and dizzying complexity, the happier its cadres of examiners may be and the richer the legions of lawyers and compliance specialists who have become the CFPB’s most loyal camp-followers. What this does for those the Bureau purports to help is, though, quite another matter.