"For all the hype about shark attacks," says the Discovery Channel, "sharks really aren't out to get us."
Oceangoing sharks, they mean. On land, corporate loansharks are doing their best to uphold the grisly reputation of the species. Their modus operandi is to peddle unaffordable loans to desperate people, who often end up paying more in fees than they originally borrowed.
These guys, in short, really are out to get us; and so, as Discovery rolled out its annual "Shark Week" programming, National People's Action, Americans for Financial Reform (where I work) and a number of other public-interest groups launched a coordinated online petition campaign urging the Consumer Financial Protection Bureau to take strong and decisive action against predatory payday lending.
The sharks we have in mind, meaning no disrespect to the cartaliginous fish of the same name, are people like W. Allen Jones, CEO of Check Into Cash, a Tennessee-based company that operates an estimated 1,100 payday loan and check cashing shops in 29 states.
Jones was a payday pioneer. In the early 1990s he had the inspiration of offering two-week loans at the equivalent of 400-plus percent interest. Check Into Cash promoted its loans as "a safe and convenient way to allow a customer to stretch their buying power and help cover small, unplanned expenses." But the bottom line, for Jones and the many other payday lenders who followed, was a business model that "depends on people becoming stuck in these loans for the long term," as CFPB Director Richard Cordray put it recently.
The payday business has been a disaster for millions of families and many communities; some of the sharks, though, have done extraordinarily well for themselves. Jones is one of the richest men in Tennessee, "clearing $20 million a year post-taxes making loans to hotel housekeepers, home health care workers and others barely getting by each month," according to the journalist Gary Rivlin, whose 2011 book, "Broke USA," illuminated some of the dark corners of the predatory lending world.
Over the years, Jones has managed to acquire two private jets, a 157-foot yacht with 10 big-screen TVs and a Gilded Age mansion (modeled on Biltmore, the palatial home of the Vanderbilts in neighboring North Carolina) where the amenities include an air-conditioned garage for his automobile collection and a regulation-size football field -- once the site of a private college football game to raise money for the University of Tennessee at Chattanooga, Jones' alma mater.
Check Into Cash has many competitors nowadays. In fact, the U.S. has more payday lending stores than McDonald's and Starbucks outlets combined; and their loan fees -- typically around 390 percent -- add up to an estimated $3.4 billion extracted (through the magic of automatic debiting in many cases) from the bank accounts of low- and middle-income families regardless of their ability to pay for food, drink, rent or other basic life needs. Car title loans, which can be equally unaffordable -- with the added twist of making people vulnerable to losing the transportation they need to get to work and make a living -- take billions more.
Fortunately, the CFPB has the power to do something about this; and after two years of study, the Consumer Bureau is getting ready to lay down a set of national rules for payday and other small-dollar loans.
A few weeks ago, the CFPB reached a settlement with one of the biggest companies in the business, ACE Cash Express. To its credit, the Bureau secured a commitment from ACE to cease -- and pay $10 million in refunds and penalties for -- an array of unlawful and bullying practices. Those practices included getting customers to take out new loans by falsely threatening to sue or criminally prosecute them or to alert employers and relatives to their financial woes.
The next step the CFPB needs to take is much bigger: using its statutory authority to crack down on a range of debt-trap small dollar loans. The Shark Week petition calls on the Bureau to write rules that will effectively end the debt trap and make sure people can truly afford loans they are sold. Otherwise, we know from experience, the payday lenders will find a way around the rules, keeping the basic debt trap intact.
This fight won't be easy. Corporate sharks, like regular sharks, have sharp teeth and formidable jaws. And they have public relations firms, lobbyists and loads of money to contribute to friendly members of Congress. The payday lenders will do everything in their considerable power to hold onto their abusive way of doing business.
But the rest of us have power, too. That's why it's so important to raise our voices, and urge the CFPB to write strong rules. Sharks have their place. It's in the ocean, not in the lending markets.