CFPB, Credit, Dodd-Frank, Elizabeth Warren, FEE, Layaway, regulation, The Freeman
Senator Elizabeth Warren would have you believe that buying on layaway is a wonderful deal. In “Layaway: Live After Death” in The Freeman, the authors discuss the horrible economics of layaway, Warren’s predilection for the practice, and the reason why it has risen from the dead.
First, the economics: these programs allow consumers to defer possession but “keep the dream alive” for a limited time, for a small down payment, which might be forfeited if the balance isn’t paid by the deadline. What a deal!
“In a sense, customers do not actually need Walmart to offer a layaway program; they can simply start saving the money themselves. Layaway essentially offers Walmart an interest-free loan. Put another way, while credit cards allow consumers to enjoy their goods today and pay later, layaway reverses this transaction by allowing Walmart to enjoy the customer’s money today and pay back the customer in the form of goods later. Layaway thus represents a shift in credit away from consumers and toward corporations. So much for consumer protection!”
But will supplies last? Usually they do. What if the availability of a “hot new item” is limited? That’s when the availability of credit can be extremely valuable. It’s up to the consumer as to whether the cost of buying the product on credit is worthwhile, but immediate possession is certainly of value. Ah, but statists like Warren want to intrude, er… help, so Congress passed the Dodd-Frank Act. It established the Consumer Financial Protection Bureau’s (CFPB) to regulate the financial industry, and in so doing, the agency has succeeded in limiting the availability of many forms of credit, especially to potential borrowers who pose high risks. The increasing availability of layaway programs is an attempt to fill the breach, though their similarity to real credit is slight. Or perhaps “slight of hand” is a better description.