Mr. John Oliver
Last Week Tonight
Regarding your show of June 5th: your segment that exposes the deceits and dangers of Donald Trump is brilliantly spot-on, but your segment on the debt-purchasing industry rests on a fundamental economic error. So I write with a friendly suggestion: always ask “As compared to what?”
You leap from anecdotes of intrepid and impolite (but non-violent) debt-collection practices to the conclusion that people who borrow money are being fleeced by the current system of debt collection. This leap is unjustified.
The greater is creditors’ ability to collect on debts legally, the easier it is for people who need loans to get those loans legally. Debt-purchasing firms, by buying debt owed to originating creditors, protect originating creditors from the risk of not being repaid. Debt-purchasing firms therefore encourage retailers and other merchants to extend more credit to consumers than they would otherwise extend. Further, the amounts that debt-purchasing firms are willing to pay to buy these debts depend on the likelihood that these firms can actually collect on the debts that they purchase. If the likelihood of collecting falls, so too does the willingness of debt-purchasing firms to buy debt from originating creditors. And as debt-purchasing-firms’ willingness to buy debt falls, so too does the willingness of retailers and other merchants to originally extend credit to people who need it.
If your goal is to help poor people, be wary of regulations that protect current debtors from resolute collection practices. Increasing current debtors’ protections from debt-collection will decrease the future flow of credit to people who need credit the most. Now you might judge greater protection of current debtors to be worth the ensuing reduction in the flow of future credit – but, with respect, you really have no way to know that the benefits to poor people of the debt-collection regulations that you support will not be swamped by the costs that poor people will endure when they discover that credit is more difficult and costly to acquire.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercator Center
George Mason University
Fairfax, VA 22030