Sunday Evening Reads
Pay Day Loans: A Necessary Evil, Predatory Lending or Both?
“The greedy thieves who came around
And ate the flesh of everything they found
Whose crimes have gone unpunished now
Who walk the streets as free men now…”
Bruce Springsteen, from “Death to My Hometown”
Enjoy the full lyrics here.
The people who “fall for” predatory loans or take out a payday loan, or even those who pawn their valuables all have one thing in common: they are desperate for cash, and they feel like they have no choice. And most of the time they’re right.
On the other hand, those who live paycheck to paycheck and need a quick influx of cash for an emergency actually need the option of a payday loan because the process is fast and easy—as long as the borrower realizes the financial trap of the triple-digit interest and other fees. Unfortunately, few who avail themselves of these types of loans are aware of the depth and breadth of their entrapment, and I’m guessing, most don’t care to know. They just need the money.
Although I haven’t taken out a true PayDay loan (when I was that desperate for cash I didn’t have a paycheck to use as collateral), I did fall prey to an unscrupulous financial institution that sent a check through the mail to my home—a real one that I could actually cash—and after many phone calls trying to nail down its terms and conditions, I cashed it, agreeing to their onerous repayment plan and horribly high interest rate. I simply needed cash to pay my bills and had no other way to get it.
For those who are blissfully unfamiliar with predatory lending practices, and Pay Day Loans which are a subset of predatory lending, I’ve put together a few pieces of light reading on the subject. Why? Because at a minimum, this industry should be more strictly regulated, and when at least 12 million Americans have to resort to these loans each year, it effects us all.
— Here’s a good primer on Predatory Lending and Pay Day Loans. By the way, have you noticed where PayDay Loan establishments park themselves? Right in the heart of the lowest income neighborhoods, of course, because they prey on the poor who are desperate for cash:
https://www.nerdwallet.com/article/loans/personal-loans/what-is-predatory-lending
— Yes, Virginia, predatory lending and payday loans are regulated to some extent, but mostly it’s a patchwork of federal and state laws that have proven ineffective to rein in the industry:
https://www.investopedia.com/predatory-lending-laws-what-you-need-to-know-5114539
Here’s an interesting piece from 2017 that discusses how the Consumer Financial Protection Bureau had its wings clipped by the previous administration and scrapped its rules intended to regulate Pay Day Loan lenders. The good news is these regulations likely will be resurrected under Biden’s tenure:
https://www.hrw.org/news/2020/07/09/us-consumer-protection-agency-scraps-payday-loan-rules#
Hope for resurrection of these proposed regulations…
https://www.americanbanker.com/news/cfpb-poised-to-reinstate-tough-stance-on-payday-lenders
According to then (March 29, 2021) acting director of the CFPB, Dave Uejio, “The CFPB is acutely aware of consumer harms in the small dollar lending market, and is particularly concerned with any lender’s business model that is dependent on consumers’ inability to repay their loans,” said Uejio.
What he’s talking about here is that lobbyists for the Pay Day Loan Industry have consistently, and up till now, effectively, fought against including a requirement that borrowers demonstrate their ability to repay the loan, which is standard for any traditonal bank loan. It’s not hard to see that the entire business model for the predatory loan industry is to trap borrowers in an endless cycle of debt, because that’s how it makes the most fees.
Wait…aren’t there usury laws, you ask?
Yes, but look at the loopholes in California’s usury law, for example, which allow charging 460% interest because, well, lenders are exempt from this law.
https://www.latimes.com/business/lazarus/la-fi-lazarus-usury-laws-20170602-story.html#
“Basically, if a company is a licensed lender in California, it’s exempt from the usury law — which is pretty remarkable when you consider that a usury law, by definition, applies primarily to lenders.”
And here’s a list of usury laws by state:
https://www.upcounsel.com/lectl-state-interest-rates-and-usury-limits
Finally for this evening, I leave you with a short story from one of my favorite authors, Sherman Alexie, titled: “What You Pawn, I Will Redeem”.
I’d love to hear what you think. Should Pay Day loans be illegal, more fully regulated? Have you ever taken a payday loan?
And don’t forget to share this post when you have a minute.
I have not had the misfortune to ever deal with these legalized loan sharks, but my sister has...I think to make predatory lending 'illegal', etc. would be pointless as I think there will always be people who seek 'sure' money, no matter how usurious and you would simply create conditions a la Prohibition...we'll see what the Biden regime can/will do...but, if I were a betting man...and any attempt at 'reform' or additional regulation, no matter how minor, will generate deep-pocket pushback and pushback often works it seems to me...