You'll hear it a lot in the coming days in the continuing debate over financial reform.
All those fringe financiers who think their industries should be exempted from a newly proposed consumer financial protection agency: they'll remind us that it was the subprime mortgage lenders, Wall Street, and the credit rating agencies that got us into current economic mess, not them.
The payday lenders have been saying it loud and often for months now: crack down on the banks but leave us alone. "Payday lending did not cause the financial meltdown that brought the U.S. and world economies to the brink of disaster," says Lynn DeVault, chair of the payday lender trade association.
The payday lenders are not alone. The country's pawnbrokers have been repeating the same refrain, as have those in the strange business of offering instant tax refunds to the working poor (typically at triple digit loan rates). Indeed, the country's auto dealers hammered at this argument so often in recent weeks that they seem to have swayed votes in the U.S. Senate, which Monday evening voted to exempt businesses that sell cars from oversight by this proposed new consumer agency.
Ed Tonkin, an Oregon car dealer and chairman of the National Automobile Dealers Association, repeated to anyone who would listen that the financial reform package working its way through Congress "was to deal with problems on Wall Street and unscrupulous mortgage lending. We don't belong in this bill."
But, really, is that the way government should work?
If you're not directly to blame for the current crisis, then you get a free pass until you cause a national recession of your own?
Plus: are these non-mortgage bare-knuckle lenders truly blameless in the economic meltdown?
They are, after all, subprime lenders by any other name, except instead of high-priced mortgages, they're peddling subprime car loans carrying annual interest rates of 18 or 20 or 25 percent or two-week cash advances at rates literally more than twice those charged by the corner loan shark.
In Missouri, for instance, the payday lenders can charge rates that work out to more than 600 percent in annual interest. Not exactly a recipe for "financial stability," as Arianna Huffington wrote recently.
Like the subprime mortgage lender, these businesses work the same easy-credit landscape. They cater to those with tarnished credit in a country at once comfortable with, and addicted to, debt. They all sell financially dangerous products, except the person getting him or herself in trouble with a payday lender or a used car financier doesn't necessarily lose a home in the process or find themselves in court seeking bankruptcy.
Still, the payday lender and also the subprime credit card companies seemed to have hastened the trip to the poor house for more than a few borrowers once the housing bubble burst.
In those first months after the country's deep slide into a recession, every third or fourth client who Chuck Roedersheimer, a bankruptcy attorney with Thompson & DeVeny in Dayton, saw in his office owed money to at least one payday lender. Usually that's because the person felt themselves drowning financially - and borrowing from the corner cash advance shop proved so easy.
"One thing I've learned in this business, people will do whatever they can, even if it makes no sense, to avoid losing their house," said Roedersheimer, who specializes in foreclosure-related bankruptcies. First they would max out their credit cards, he said, "and then they'd start hitting the payday loan stores."
The person taking out a payday loan to help pay the next mortgage is just forestalling the inevitable. But even a few people I spoke with inside the payday industry sees theirs as a business in need of reform.
One was Billy Webster, who as the co-founder of Advance America, the country's largest cash advance chain, is a payday pioneer. Like the subprime mortgage companies, the payday lenders took advantage of the same deep and restless pools of capital available during the first part of the 2000s. With ready cheap money, Webster watched as the industry he helped to get off the ground expanded so aggressively that, by 2006, there were more payday stores in the U.S. than McDonalds or Burger Kings combined.
The industry overbuilt, Webster told me when I visited him in Spartanburg, South Carolina - and overbuilt by a lot. To make his point, Webster, who got his start in business as a franchisee for Bojangles, harked back to his fried chicken days.
"You'd never have seen a Popeye's and a KFC on the same corner as a Bojangles," he explained. "But that's what you have now [with payday lending stores]. So you end up not just with saturation problems from a business perspective but also multiple loan problems."
Someone owing $1,500 or $2,000 to three or four payday lenders and drowning in fees didn't cause the world's credit market to freeze up. But it's still destructive debt -- and isn't that what it's all boiled down to when considering the economic misery of the past couple of years?
And so long as we're thinking about financial reform, shouldn't one goal be a safer, more sensible financial marketplace than in the past, whether someone is shopping for a $200,000 home loan or a $200 cash advance?
Follow Gary Rivlin on Twitter: www.twitter.com/grivlin
Richard (RJ) Eskow: Traded-In: These "Used" Senators Sold Out The Troops For Auto Dealer Cash
If you have a yellow "Support Our Troops" sticker on your car -- or even if you don't -- you should know the name of the Senators who just sold out our troops, their families, and our military readiness for easy cash offered by auto dealers.
http://bigjournalism.com/lmeyers/2010/05/26/no-payday-lenders-and-other-fringe-lenders-are-not-to-blame-for-the-economic-collapse/
The payday lending industry is far too small to have caused the financial crisis.
In January 2008, I realized Dad’s declining health was not only an emotional hell, but upon his death, my Mother would suffer financially as well. So considering the options of retired federal government employees, I called their mortgage banker with our pleas. The response was two years and five months of masterful dodges, a roller coaster ride of good cop/bad cop routines through a contrived maze of deception and condescension. What started four months before my father’s death, ended twenty-five months after his final breath.
There was a smirk in his voice when he ended the conversation with, “you have an offer of modification which you can accept or not.†“What choice do I have,†I asked, and he actually said, “I guess you don’t have a choice.†“I’ve looked at all the numbers, he insisted.†“Not all of them†I persisted. Proudly he confessed, “I’m not interested in the other slices in your Mother’s monthly expenses, I only looked at the numbers to determine whether or not she qualifies for a modification to pay her mortgage.â€
http://bigjournalism.com/lmeyers/2010/05/26/no-payday-lenders-and-other-fringe-lenders-are-not-to-blame-for-the-economic-collapse/
In Mexico in the mid-'90s Wall Street engineered a currency coup that tripled the debt owed by small businesses and family farms and also allowed for them to be massively ratejacked on top of it. Mexicans consequently formed the "el Barzon" movement and pushed back Wall Street and deposed their ruling party of 60+ years. In this country YouTube phenom Ann Minch has already declared the debtors' revolt and begun going after them http://www.revoltstartsnow.com
If you've been pushed under, you can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete
One thing I have learned is that the payday industry does not take any criticism lying down. They have a huge, well paid, public relations staff who can crank out responses with the best of them. I expected that this article will have a lot of comments.
The Hagan amendment sought to cut off this option without offering a solution. There is and interesting bill (SB 1146) in the California legislature which is designed to bridge this gap. I can't comment on the merits but I commend the bill's author, Senator Florez, for recognizing the need for a longer term option for the working class.
Gary, I look forward to reading your new book.
This is an OPTION. No one is forced to use a payday loan and they can be used for GOOD reasons. The APR is FAR LOWER than an overdraft fee, bounced check fee, or having your lights tuned off without a deposit.
94% of people pay them back in time as reported by the SEC filings of Advance America, so the myth of every payday loan user rolling over loans is **FALSE**
Why don't you folks spend you time:
A) Competing with payday loans with your own funds or taxpayer funds
B) Working on financial education for the population
C) Working on creating opportunities for working families to make more money
Taking away options, even if in your self-inflated mind you know what is good for everyone, is NEVER a good idea...
As for that 94 percent figure, that's deceptive. Many states forbid rollovers so people pay back a loan on Saturday and take out another on Monday -- or they just go to a rival after paying back the first store.
But "reason ing" is correct that financial education and more affordable options are the best answer.
Whether those loans are rollovers taken all at once, or on 8 or 9 separate occasions, the customer ends up spending the same amount of money for access to credit. As rollovers, they MAY but not necessarily DO, result in higher fees than other options. If, for example, the writing of a bad check to one creditor results in several checks bouncing, the payday loan option may STILL provide a better deal both in terms of absolute dollars spent and APR. After all, if bouncing a $50 check causes a bunch of other $50 checks to bounce, with each one generating a $60 fee...well, Gary, then you would be wrong.
The truth is, we just don't know. We don't have that data. So to draw definitive conclusions on either side would be misleading. Therefore, to say that 94% payoff rate is deceptive is not entirely honest on your part. It may very well be that much of that rate are, in fact, timely no-rollover payoffs.
Financial education is always a good idea. The industry does not oppose this, as far as I know.
End Part 1
What other option do you propose? Have you considered that if another such option were possible that the market would not have already come up with it? Are you trained in basic economics? These are really very basic questions.
Or will you suggest that government somehow subsidize low-cost alternatives? In that case, why should payday lenders be forced to compete with a business that is government subsidized, or in the case of a credit union, need not actually make a profit? Do you consider that to be fair to the businesses?
I get this sense -- and its just a whiff -- that you feel that payday loans are bad, yet you offer no viable solutions as to why this is the case, especially considering that the transaction occurs from a borrower's free will.
Big Gov't indeed!
In your world a mugging isn't a crime if no one gets hurt!