As a proud fan of Missouri and the Cardinals, nothing excites me more than watching our neighbors to the east suffer.
Unfortunately, however, outside of the Cardinals’ inevitable total dominance sometime between spring training and the end of June, regular opportunities to celebrate Missouri’s superiority compared to other states are often confined to the AL Central. National League. That is, of course, unless you count our beer, our hockey, and now, our financial policy.
I’ll admit it: financial politics isn’t often what comes to mind when people think about rivalry between neighboring states and their sports teams, eating customs, and other quirks and preferences. And while I can spend all day praising Imo’s and La Pizza for Chicago-style deep-dish “pizza” (aka “junk”), financial politics is proving to be the latest area where Illinois has caused a self-inflicted wound that takes him. down one or two pins below the Show-Me state.
Until March 2021, Missouri shared relatively similar consumer lending laws with Illinois. These laws were pro-consumer, pro-free market, and promoted strong competition that ensured that all residents could access credit, not just those with wealth or high credit scores. That all changed after Illinois enacted a 36% interest rate cap on consumer loans.
This was a market manipulation strike that sent shockwaves through the state’s economy and has left all Illinoisans in the lurch.
A new study authored by leading economists from Mississippi College, the Board of Governors of the Federal Reserve System, and Mississippi State University quantifies the pain this price control law has caused in the state of Prairie. By comparing the financial well-being of Illinois subprimes to that of their Missouri peers after Illinois implemented its 36% rate cap, this research, the first of its kind to make such a direct correlation, found that the impacts of rate caps have been disastrous by every metric.
First, the availability of loans in Illinois has dropped by nearly 50%, meaning half of the credit applicants in the state now have little or no access to credit. This presents a real crisis for Illinois consumers once we consider that these loans are typically used during a financial shock like a medical emergency, auto repair, or other unexpected expenses.
Additionally, 89% of Illinois respondents said their financial situation worsens after the interest rate cap. Finally, a whopping 79% of Illinois consumers wish they could borrow like they were before March 2021. While rate cap supporters continue to portray these results as a good thing in some ways, those who used the products that their so-called representatives have since been banned do not seem to agree.
I’ve worked in politics long enough to see how the political aspirations of our most liberal legislators often create problems for workers, and financial regulation is no exception. Progressives in state houses from Delaware to California are viewing “rate cap” laws as easy political victories to appease their liberal base, because the truth is that liberal suburban elites generally don’t use emergency loans. “How could anyone use these products?” they seem to ask with an implicit sense of condescension, so clearly putting their privilege on the table for all to see while betraying those they claim to care about.
Meanwhile, special interests and regulators in Washington, DC have begun colluding with state attorneys general to pressure these companies out of business by making them too expensive to operate. When that happens, Illinois is an example and a warning of how consumers will suffer.
Unlike the Cardinals’ inevitable victory over the hapless and pathetic Cubs, removing important financial options from the race for Missouri consumers is no laughing matter or cause for celebration. In its current form, Missouri’s consumer-friendly financial policy sets us apart from our neighbor to the east. It would be a shame if we changed it.
Gregg Keller is the president of the Missouri Century Foundation (@MissouriCentury).