So to continue some of the "big government", "free market", "proper role of government" debate, I thought it might be informative to focus on a concrete example of predatory financing, in this case, used cars. Apparently this type of business, where used cars are financed at extremely high interest rates to people with bad credit with the expectation that they will default, has been booming since the Great Recession has hit.
On its face, these guys are pretty stinky – taking advantage of desperate people who see cars as incredibly important to their ability to earn a living. Now, one could argue that these people should know better, and that while taking the bus can be a hassle, if you can't afford a car, that's what you're left with. But let's take a deeper look.
First of all, it seems that repossessing a car and expecting the loan to be paid back is double dipping – as a libertarian, I wouldn't object to regulations that would prevent that double dipping, for example, if the used car is sold a second time, those proceeds should count as a credit on any initial loan terms to the first delinquent borrower. While it's a stretch to call that a protection of negative rights, I'd offer up that double dipping represents theft, and it is the proper role of government to use force to protect people from theft. The same rationale could probably be held for homes as well – if you borrowed $500k, paid off $200k, and then defaulted, and the bank took the home, it would be unfair for the bank to sell the house for $300k and keep you on the hook for $300k.
Another "less regulation" approach might focus on the cause of desperation here – people who disdain public transportation, and feel the desperate need to have a car. Probably more prevalent in the california southland than in say, manhattan, I'd argue that part of the reason we have this problem is because of the regulations on taxi transportation in the southland (see: http://www.irle.ucla.edu/research/pdfs/drivingpoor.pdf for an excellent paper on the topic). If there were free market alternatives to these predatory lenders and their used cars, they'd be put out of business. While taxis and used cars aren't necessarily in the same industry, the root cause of desperation (transportation) is being addressed by both.
Anyway, there's my first shot – take these people and run them out of business with either some light free market regulation, or some severe deregulation of the transportation industry. At first blush, I favor the latter, but I'm open to the former.ï»¿
First of three parts