Opinion: Disparate Impact Of Regulation And President Obama's 'Operation Choke Point'

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In a recent weekly address in Spanish, White House Director of the Domestic Policy Council Cecilia Muñoz weaved the President’s budget proposal into a fictitious narrative aimed to assure the Hispanic community that the administration’s policies will contribute to provide opportunity, economic growth, and prosperity, promising “it will grow the middle class.”

But as has all-too-often been the case during the last few years, the administration’s rhetoric concerning economic opportunity flies in the face of heavy-handed political maneuvers that destroy chances for upward mobility.

Without a sane analysis, efforts like Operation Choke Point can really only be interpreted as political operatives prioritizing an ideological crusade over an interest in actual economic recovery.

— Mario H. Lopez

For example, the Obama administration has been employing clandestine policies to cut off easy access to cash by systematically eliminating alternative lending options. In August 2013, the Wall Street Journal reported that the Justice Department was “targeting banks that service a broad range of what it considers questionable financial ventures, including online payday lenders.” Additionally, banks like Capital One have already closed the accounts of check-cashing companies. By going after these companies, hardworking Hispanics without a bank account may not have a place to cash their paychecks.

This affects anyone who finds themselves strapped for cash, including self-employed and blue-collar workers. The administration's regulatory assault is not an assault on the short-term lending industry, but rather on any consumer who relies on having access to cash in cash flow emergencies, especially in underserved communities. For example, two-thirds of all Hispanics work in the service industry, and they will feel the brunt of these policies more than others. In addition, alternative lenders can cater to newer immigrants without substantial credit histories — a demographic that banks fail to serve.

Contrary to the administration’s claim that these targeted financial businesses have a “disparate impact” on minorities, the truth is that these heavy-handed regulations will have a disparate impact on the country’s minorities, many of which live in communities with limited access to traditional banks. And the answer is not capping rates or creating artificial “waiting periods” as the controversial Consumer Financial Protection Bureau has considered. Those remedies will ultimately ensure that the companies will stop providing these services since they are no longer profitable.

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In addition to restricting financial options for blue-collar workers, lending regulation will also hurt small-business owners and entrepreneurs, an area where Hispanics have contributed greatly to the American economy. Hispanic entrepreneurs fortified the U.S. economy by an estimated $468 billion last year. This has been pivotal for the nation’s economy, especially in the face of the economic recession.

For frame of reference, from 2010 to 2012, the total number of American entrepreneurs declined by 250,000. Yet in the same period, there were 160,000 new Hispanic entrepreneurs in the U.S.

From 1990 to 2012, entrepreneurship among Hispanics multiplied nearly 10 times that of the general population. Many of them utilized these alternative loan products for quick access to capital, capital that is harder than ever to receive from traditional banks due to the passage of the Dodd-Frank Act.

Targeting payday lenders is only the tip of the iceberg of the administration’s broader initiative, which they tellingly named Operation Choke Point, a maneuver designed to literally choke private businesses at their financial wellsprings by intimidating banks and lending institutions into compliancy. These purely political maneuvers hold no promise for actual economic recovery.

In addition to targeting short-term lenders, another goal of the Obama Administration’s Operation Choke Point is to obstruct multi-level marketing companies, where new entrepreneurs often get their start.

Take Herbalife, a company where Hispanics make up 60 percent of direct sellers. The administration opts to gut profitable companies, condemning sales practices that they judge to be inferior while at the same time initiating no real recovery measures. These policies hurt minorities, who disproportionately make up the lower echelon of workers that are forced to seek irregular forms of employment.

Government agencies and the folks who seek to empower them with more control over the lives of ordinary people are quick to claim “disparate impact” as a justification for their regulatory excesses. But in order to understand the full story, policymakers should look at the impact those very same regulations have on the economy at large, all the people whose jobs and livelihoods are tied to the impacted industries, and the disparate impact the destruction of those industries will have on underserved communities all across the country.

Without a sane analysis, efforts like Operation Choke Point can really only be interpreted as political operatives prioritizing an ideological crusade over an interest in actual economic recovery.