Fixing the Economy, from the Bottom Feeders Up

12/18/2008 05:12 am ET | Updated May 25, 2011
  • Don McNay Financial Expert and Best Selling Author

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 or read his award winning syndicated column at