Sunday, February 1, 2009

Payday lending

Today, the Roanoke Times has a good editorial against payday lenders. They argue that the predatory practices of payday and car title lenders - in my mind, our contemporary Temple money-changers - need to be cast out. The Virginia legislature tried to "reform" this industry last year, but lenders found loopholes in the bill to further prey on the financially desperate and insecure. 220South has a scathing analysis on these "reforms." In economically distressed times, people are more likely to make irrational decisions in order to keep their lights on and food on their tables, not thinking through the fact that they further endanger their economic livelihoods with these loans. And because of ungodly interest rates and roll-over fees, when these loans are taken out, a cycle of increased and perpetual indebtedness ensues. That is the very definition of predatory. Why Virginia hasn't barred this industry is beyond me.

In a two mile stretch on Rt. 220 in Collinsville - the town connected to Martinsville - there are over a dozen payday and car title lenders. I never figured out how there can be such a market for that many shops in one geographically concise area. On the same note, in Virginia, I'm told, there are more payday lenders than there are McDonalds and Burger King's combined. Absolutely sickening.

11 comments:

Darren Staley said...

Drew,

I'm not sure you should bar the industry. There are people that need the service to, in the words of Bush, "put food on their families."

Just regulate the fees/rates.

Drew said...

We tried this last year. We capped the interest rates (36% I believe), but the industry found loopholes. They created a new type of loan, for example, in which they don't charge interest for the first 25 days, but afterwards, they can charge whatever interest amount they want.

Of note to you, North Carolina has made this industry illegal.

Darren Staley said...

Point well taken, but where does it end? Do we ban finance companies? Rapid Refund tax loans? Credit cards?

The same argument could be made against any of these industries.

Back in my factory days, there were bad times when without a cash to payday loan I would have been evicted from my home.

Sometimes it was my fault for living beyond my means, but other times it was a two-week layoff and a one-week waiting period to get the unemployment check.

The fees were horrible, but at least I had the capital to keep us afloat and bounce back.

Drew said...

Trying to put the breaks on this slippery slope argument, i think we can draw the line at an industry that violently perpetuates debt with open-ended interest rates, or with interest rates - and with especially short repayment windows - that exceed, say, 30%; I'm not sure what a 'normal' credit card interest rate looks like, but an industry that has substantially higher interest rates than credit card companies, like payday lenders, should be barred from Virginia. Just my thoughts.

Last year on the campaign trail, although it was a state issue, I heard a story, whether true or not, of a man who took out a loan for $75. He couldn't repay the loan in the window, and his debt kept rolling over. A couple months later, his debt accrued to over $1300-1400. No financial loans, rapid refunds (one time fee), or credit card agency turns such a relatively small sum of money into a big debt so quickly. That is amoral. The new "reforms" extended the payback window, but still.

As last legislative session showed the payday lobbying industry is very powerful in state politics.

A Faithful Reader said...

I agree, these lenders are the modern day money changers. The local establishments charge upwards to 300% after the 29 day window. (That is correct three hundred percent) For the very poor one short term loan can enslave them forever. The only difference in a Pay Day Lender and a person that extorts money is one is legal and one goes to prison.

Further, extortionists often prey on those that are in heavy debt by buying their loans from the Pay Day Lenders and then force the borrower to do things to pay off the debt. It is common for women to be enslaved in prostitution in the worse side of the lending cycles.

Yet even at their purest, the high interest is immoral.

The question raised by several columnists is "where are the churches, and why are they not standing up for the poor and hurting?" Where are those called to give to the poor to prevent them from being exploited and extorted?

Lisa Miller in the Washington Post "On Faith" section wonders are people hoarding during hard times or are they sharing as many religions call their followers to do.

Pay Day Lenders and Car Title Lenders are money changers and need to be driven from the temple of our lives. In their place should be religious people who shared with their poorer brothers and sisters. A little given in love will bless the giver and the receiver and will save 300% in interest.

Darren, with these lenders one cannot "put food on their family tables because there is no money to buy food after the high interest payments. The only choices are benevolent agencies - like churches - or borrow more from the money changers.

Kent H said...

Just a thought,
As is evident in so many areas of American culture, Christians and the church are being told, "we don't want you here. Keep your opinions to yourself." And here now, Faithful reader thinks the church isn't doing enough to provide monies to the suffering. Now, I won't discuss the merits and avenues of the billions of dollars Christian organizations put into cultural and social help programs. My question is this: Are churches now being told, "We don't like your opinions in the public square, or in the classroom, or in the state house, but if you have some money, you need to kick in a little more of that. Why aren't you putting your money toward the causes we want you to."
I don't know, just sounds a little capricious. My 2 cents for today.

A Faithful Reader said...

There is an article in consumerist.com that quotes a Democratic State Representative saying that Payday Loan agencies are needed so people will not be dependent on churches.

I guess, for this state official, dependency on Loan sharks is better on people than being helped by churches? I don't think so!!

Alicia said...

I am very eager to respond to this topic. I especially love it since Drew, you have left handed quoted me. It is I who made the fast food Martinsville pay day lender connection.

Unfortunatley I am swamped but will add to the topic later tonight or tomorrow.

Drew said...

Alicia, I don't know what a "left-handed quote" is, but if I heard it from you, I hope that I quoted it accurately. In truth, I am not entirely sure where I heard that quote, but I think Gov. Kaine said it when he visited Martinsville early last year.

Anonymous said...

it's called "freedom of contract."

unfortunately, all we ever hear about in this country are "rights" and "freedoms" but never the flip side, "responsibility."

Where is personal responsibility in all this? This is just more nanny-state legislation to protect people from their own stupidtiy.

And Drew, it's not called a "loophole" it's merely businesses complying with the law as written. Proof again, that you can't legislate people's behavior.

A Faithful Reader said...

Anonymous, it is called extortion, it is shaking people down. It is immoral. For those who have no credit standing enough to get a bank loan, and need money to survive, these legal loan sharks are the only alternative. The question is not if they should be in business, as much as it is, if they should have ability to enslave people. A high risk loan may require a higher rate, but 391% is far too much in a depressed economy.

Regulate them because they are unwilling to do right while unregulated. They had a chance to do right, now, yes, we protect the unprotected. This has always been the American way, we are a moral people.