Fixing the Economy, from the Bottom Feeders Up

And it went on yesterday and it's going on tonight
Somewhere there's somebody ain't treatin' somebody right

-Bob Seger

People want to compare this recession to the recession of 1981. But there are differences. In 1981, we didn't have payday lenders, tax anticipation loans and high interest credit cards.

Those three industries have made huge profits pushing their products to the low end of the economy. Actually, they don't target the low end. They target the lower than low end.

You don't see investment bankers and doctors or lawyers lined up at the payday loan office. You do see their maids and janitors.

Credit card interest rates used to be capped at 18%. Then issuers figured out a way to charge more. Now the fees and interest rates are outrageous.

I'm not sure where the payday lending businesses came from, but they populate poor neighborhoods everywhere. A similar business is the tax anticipation loans business. They charge people huge fees for a one or two week advance on income tax refunds.

Even after $700 billion of bailout money supposedly pumped into mismanaged banks, I've seen no talk of capping interest rates and fees for consumers. There have been some states, like Ohio, that have taken steps to curb payday lending. However, national legislation is needed to protect all citizens.

Economists and pundits blame sub-prime mortgages and other things for the economic crisis, but I wonder how much the problem can be attributed to those who are pushing payday lending, tax anticipation loans and high interest credit cards.

High interest rate, high fee lending permanently enslaves a subclass of the population and ties those people to a mountain of debt.

People who get payday loans are not going to benefit from the "flood" of money from Wall Street to Main Street that Hank Paulsen and his cronies promised us. I'm not sure the rest of us will either, but at least we have hope and an outside chance.

People who are trapped in a cycle of high interest debt don't have that chance.

Since we are bailing out the people at the top of the economic scale, it is time to do something for the people at the very bottom, too.

If we are going to be "fair" to executives who get big bonuses and fly around attending expensive junkets, we need to be fair to the one segment of the population that has not asked for a taxpayer bailout.

Congress needs to look at the payday lending laws in Ohio and needs to pass a law modeling it for all states.

Then Congress needs to cap the fees and interest rates that credit card companies and tax anticipation businesses charge.

You don't even need an act of Congress to do this one: We just need to stipulate that any financial institution participating in the $700 billion bonanza not charge more in interest rates and fees than credit card issuers did in 1981.

In 1981, we had people who provided the same services that payday lenders, tax anticipation lenders and credit card issuers now provide.

They were called loan sharks. Their business was illegal and immoral.

Now it is legal, but the immoral part hasn't changed.

My late father was a professional gambler in the then wide-open gambling town of Newport, Kentucky. He lived long enough to see high interest credit cards, and noted, "If a loan shark charged rates like these, he would be floating in the Ohio River."

I can't imagine what they would have done to a loan shark who charged the rates that payday lenders and tax anticipation lenders charge.

I've never liked the Wall Street bailout. But it happened. We are $700 billion into it and I suspect we are in for a lot more. The entire financial world is being made over.

We've done a good job of bailing out the people on the top end of the economy.

It's time to help people on the low end, too.

Don McNay is the Founder of McNay Settlement Group in Richmond, Ky. He is the author of Son of a Son of a Gambler, based on childhood as the son of a professional gambler. You can write to him at [e-mail] or read his award winning syndicated column at www.donmcnay.com

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Comments

[GHENT007]

09:14 PM on 11/18/2008

If you want to fix the economy, here's a few ideas, first we need to regulate any and all monies going in and out of the us treasury, staggered taxes, instead of paying taxes every year, americans should only pay taxes if they make over 120,000 dollars a year and not every year , every other year, this will keep more money in the economy, allowing growth, if we paid taxes, every other year, we would never have a recession, or a economic slowdown because for every year that we pay taxes we'd have a year to prosper,th­is is a simple basic solution to one of our oldest dated economic problems.

[Sundialsvc4]

10:41 AM on 11/18/2008

it's called "usury," Don, as you well know.

Not too long ago, it was a crime in all 50 states.

It's a legendary crime. In the olden days you'd get your right hand chopped-of­f for it, like a common thief, before they turned you out into the desert with no water to become food for the vultures.

We need top-to-bot­tom reform of the entire banking and lending industries in this country, and a very good model for it is "what the Good Book says." Not because of the religious significan­ce of that book, actually, but because "the love of money really IS the root of all evil," and the social consequenc­es thereof are the stuff of ancient admonition­s contained in this book and so many others.

[tomas0808]

07:22 PM on 11/17/2008

Ah, the good ole days when the only criminals we had to worry about were Capone and Lucky Luciano. They only charged 15% tops!!!!!! They were run out of business so the banks could take over

[takata521]

05:45 PM on 11/17/2008

The payday loan companies are funded and owned by the "legitimat­e" banking industry..­.
that is where they came from !

[iambusto]

05:21 PM on 11/17/2008

If you are against pay day loan people, dont go there.

NOBODY put a gun to anybody's head to loan from those rackets.

Cap the rates and the payday loan people would just not lend to those credit damaged people. simple as that. they would find a better business.

In an ideal world, no body would need a high interest loan. since it isnt, what you would be doing is that these people wont have anywhere to go for a loan.

[Don McNay]

06:17 PM on 11/17/2008

I don't like to get into running debates about my columns but I have to disagree with your statement. Usury laws have existed back to biblical times and government­s serve a function in protecting people from being exploited.

As I noted in the column, there was a world before payday lenders.

No one puts a gun to people's heads to buy heroin but we have laws against drug dealers. The Ohio legislatio­n did not put payday lenders out of business. It just made the "loans" less exploitive­.

Don McNay

[iambusto]

05:12 AM on 11/18/2008

I agree. I made a very general comment. Let me rephrase.

If you cap the max rates for pay day lenders, then all that will happen is that a lot of the people who were using these rackets wont get loans at all. That is probably great news to most people because they now feel great that these credit damaged people are not being exploited.

But the catch is that no one would be giving them loans. If you could get a loan at a regular bank/credi­t card company at reasonable rates, why would you go to a payday loan. Pay day loans exist for people who cant get loans anywhere else.

hope it makes sense.

[bluefog]

03:11 PM on 11/17/2008

As usual with things done by the federal government­, the bailout was done backwards. If the money had been divided equally among the American citizens, to everyone over the age of 18 years, 0 months and making less than $200,000.0­0 a year it would have self-mende­d the economy. People would be buying cars, having their houses fixed, rescuing themselves from foreclosur­e, etc.
Since the federal way did not work and no one knows where the money went, the victims, the American taxpayers, are being told they should spend money to help the economy get back on track.
I rest my case.

[Sundialsvc4]

10:51 AM on 11/18/2008

You rest your case, bluefog, but did you sustain it? If I were to hand each and every one of you $50,000 with no promise of more, what would you actually choose to do with it? I will have handed you a fish.

But what if I "taught you how to fish," instead? What if I gave you a sustainabl­e job at the local factory, now re-opened, that paid you $50,000 a year earned from the proceeds of that factory's sales? And what if at the same time I re-imposed the ancient taboos against "the charging of excessive interest?"

The true strength of any human society comes from the industry, the industriou­sness, of its collective members. Absent this, famine occurs, and predators appear from within the society itself. Loansharks (let's call them what they ARE...) are an ancient form of that predation.

How utterly ironic that this desperatio­n takes place on the doorstep of a shuttered factory in what was, not sixty years ago, a nation that was single-han­dedly responsibl­e for more than 50% of the entire world's industrial production­. What fools we have been. And yet, how very obvious is the path of our escape.