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There are more payday loan stores in the U.S. than all the McDonald’s and Starbucks stores combined. It’s clear that tens of millions of consumers across the nation want and feel they need this product. It’s equally clear that government policymakers believe they know what’s best for consumers.

Recent actions taken by the federal government to eliminate a variety of short-term loan products suggest a strong bias against all such loans – period. If so, regulators need to reconsider before they destroy a critical source of credit for families and the economy as a whole.

I want to make a couple of things clear before proceeding. Until April when I reach mandatory board retirement age, I am chairman of Fifth Third Bancorp, which is one of four large banking companies to recently abandon very popular short-term lending products in response to regulatory pressure. Also, my consulting firm has done regulatory compliance work for one or more payday lending firms. I’m not speaking for those companies.

[I began my career with the Foley & Lardner law firm in Milwaukee 45 years ago. I recently had the pleasure of returning to Milwaukee to address the Bank Executives Conference of the Wisconsin Bankers Association. It gave me an opportunity to reflect on how we might use lessons of the past to improve bank regulation dramatically. We deserve much better than we are getting. I hope you will take a few minutes to read the speech below.]

It’s a great privilege for me to return to Milwaukee to appear before the Bank Executive Conference of the Wisconsin Bankers Association. I began my career in Milwaukee in 1969 when I joined the Foley & Lardner law firm. I will always be grateful for the experience and wisdom I gained during that period, particularly the invaluable mentoring I received from Ted Wiley at Foley & Lardner.

The largest bank in the state — First Wisconsin, now part of US Bancorp – was an important client of Foley & Lardner, and I spent much of my time doing acquisition, correspondent banking, regulatory, and commercial lending work on behalf of First Wisconsin. I also represented a fair number of community banks throughout the state. It was a great introduction to an industry to which I would devote the rest of my professional career – some 45 years thus far and running.

I was appointed by President Carter to the FDIC board in 1978 and was named Chairman by President Reagan in 1981. The 1970s were a time of low economic growth and high inflation – we called it “stagflation.” Paul Volcker was appointed Chairman of the Federal Reserve by President Carter in 1979 with a mandate to get inflation under control. Volcker, a courageous and principled man, did just that – but at great cost. The prime rate soared to 21 ½%, wreaking havoc throughout the economy and financial system.

Despite the Federal Reserve exploding its balance sheet over the past six years from less than a trillion dollars to nearly four trillion, average GDP growth over the period remains only about 2%. The average pace of the current economic expansion is less than half the average of the last four recoveries and well under the 3% long-term growth rate of the U.S. economy.

We believe this is due in significant part to a lack of confidence by private-sector decision makers. This is evidenced by the fact that liquidity on corporate and individual balance sheets remains at record highs despite the enormous opportunity cost of such liquidity due to near zero interest rates.

Confidence remains low notwithstanding reasonably solid, albeit low, GDP growth; slowly declining unemployment; turnarounds in the automobile and real estate industries; and the fact that the U.S. is on the verge of becoming energy independent.

Certainly part of the problem is the dysfunction in Washington. Until the recent modest two-year budget accord, private enterprise decision makers witnessed complete disarray in Washington with the shutdown of the government and the inability to pass budgets or get spending under some semblance of control.

These fiscal policy problems are compounded by the monetary policies of the Federal Reserve. Only academic economists could possibly believe that a timid $10 billion reduction in the purchase of Treasury bonds by the Fed, while continuing to purchase $75 billion a month, would negatively impact the economy and increase unemployment.

The path to economic growth is not to be found in quantum economic theory. The poorly handled economic crisis of 2008-2009 resulted in a severe worldwide financial panic and shook public confidence to the core. The challenge is to restore confidence in the future and convince private sector decision makers that better times are ahead.

Here is the link to the full article