Governor Sees the Problem, Not the Solution January 15, 2020 Earlier this week in comments to North Country Public Radio New York Governor Andrew Cuomo warned that “many New Yorkers are vulnerable to predatory businesses because they are shut out of the banking system.” To help combat the problem, he introduced a banking proposal to invest $25 million over the next five years in the state's Community Development Financial Institutions, which are largely funded via the U.S. Treasury Department’s CDFI program. AFSA recently published a white paper on subsidized loan programs. Under the proposal, the funding would serve economically distressed communities and people on limited incomes with flexible rates, lower-interest loans, and low overdraft fees, while also expanding financial literacy education. While helping consumers who do not have access to a bank account or affordable credit is a worthy goal, the governor has it backwards. What New Yorkers need isn’t more taxpayer money being spent, it’s policies that enable borrowers to access the credit they need. New York caps its lending interest rate at just 16 percent, far too low for many reputable lenders to conduct business, forcing consumers with poor credit or no credit to seek small-dollar loans or shorter-term loans – the types of loans the people Cuomo is trying to help typically might be seeking – from less-reputable financial operators. In a recent Real Clear Policy post , Tom Miller, the Jack R. Lee Chair in Financial Institutions and Consumer Finance at Mississippi State University and Todd Zywicki, a University Foundation Professor of Law at George Mason University Antonin Scalia School of Law noted: “A primary function of credit is to smooth consumption. More than a third of households making under $50,000 experience month-to-month spikes and dips in their income. Small-dollar credit products help them deal with unforeseen expenses. The choice for these consumers is between using small-dollar credit products and simply going without.” Miller and Zywicki were talking about a 36 percent interest rate cap which is currently part of a misguided bill in Congress. Sixteen percent essentially guarantees that these consumers will not have access to the loans they need. Governor Cuomo should be commended for his emphasis on financial education and working to make banking products more accessible to consumers. He should, however, also acknowledge that the reason CDFI is needed to help fill an unmet need is due to the misguided policies the State of New York imposed on the financial services industry in the first place.