Payday Loans: Modern Day Usury
By Stephen Lendman
Payday loans let predatory lenders rip off unwary borrowers. They provide short-term unsecured quick cash. It comes at a high price. It matches the worst of loan shark practices.
The Center for Responsible Lending (CRL) calls itself a "non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices."
It's "witnessed, studied, and fought against outrageous lending abuses." They "strip billions of dollars from (unwary) American families."
In July 2009, its report discussed predatory payday lending. It's titled "Phantom Demand: Short-term due date generates need for repeat payday loans, accounting for 76% of total volume."
In other words, debt entrapment assures repeat business. Borrowers need new loans to service old ones. They also need help to meet other obligations.
It's a scam. It extracts up to an 400% annual percentage rate (APR). It requires short-term balloon payments. They're do every two weeks. They extract 25 - 50% of borrower income. Doing so leaves them unable to handle daily obligations.
It forces them into new loans. If not repaid, they're automatically rolled over. Added interest compounds. What a way to make money. It's sure fire profit-making. It works as planned.
In 2010, three million Americans got payday loans online. Doing so expands a lucrative profit source. By 2016, forecasts estimate 60% of payday borrowing this way. It's nearly double 2011's level.
Offshore sites operate. Doing so circumvents state regulations. Shell companies run them. Anything goes is policy. Consumer protections don't exist. Scams are easier than ever. Clever crooks find new ways to steal. It's easy when no one stops them.
New loans follow old ones. Many happen almost immediately. At times it's in a day or less. Doing so locks borrowers in debt. That's what lenders have in mind.
Borrowers "generally open new loans in rapid succession." Around 87% of new ones occur during the next pay period. Half come when borrowers are first able. They're after partially repaid old ones.
"Churning" guarantees big profits. Nearly 59 million loans exceed $20 billion. Loans to one-time borrowers account for 2% of volume.
Churned loans produce $4.5 billion in annual fees. Unwary borrowers don't know what they're getting themselves into. They enticed with first-time discounted or free terms.
One-fourth of all customers are Social Security recipients. Most getting loans have limited means.
Borrowing becomes habitual. Interest way exceeds principle. Debt entrapment extracts it longterm. Business models prioritize it.
In November 2010, CRL headlined "Modern Day Usury: The Payday Loan Trap." Fast cash comes with strings. America has up to 25,000 payday lenders. Most are small community operators.
They rip off borrowers for profit. A typical one repays $793 for every $325 borrowed. Abusive lending is longstanding. It's rising exponentially. Hard times increase customers.
Consumer protections don't safeguard them. They're vulnerable to abuse. Debt entrapment devastates them. Eighteen states and the District of Columbia prohibit or impose restrictions. They're too weak to matter.
Several other states have interest rate caps. Banks make payday loans. Wells Fargo, US Bankcorp, Fifth Third Bancorp, and others offer "checking advance products."
They replicate bad practices. They drain money from low income communities.
They prioritizes grand theft. They circumvent state laws. They do it with impunity. They get away with lawless practices. They prioritize doing so.
They needn't worry. They have friends in high places. Money power runs America. Whatever it wants it gets. Predatory lending harms vulnerable borrowers. Low income households suffer most.
Harvard Business School found payday lending responsible for repeated overdrafts. Checking accounts are lost.
In 2006, Congress capped interest rates for active duty personnel and their families. It did so at 36% APR. Banks find ways of getting around it.
They get virtually free money. They use it to make more of it. They make it the old fashioned way. They steal it. Payday loans produce big profits. They're at the expense of unwary borrowers.
Companies like Advance America, First Cash, and EZCORP get JPMorgan Chase, Wells Fargo, and/or Bank of America funding. They can't operate without it.
Banks say they're serving customers. It's a lucrative partnership. They do big time stealing on their own. Their business models prioritize it.
In July 2011, the Center for Public Integrity urged payday loan rollover limits. They're supposed to provide emergency short-term cash.
Experts say it's not so. Multiple rollovers follow initial loans. Huge costs are incurred. National limits need to be imposed. Truth in lending rules need clarification. Nothing has been done so far. Grand theft continues.
Voice of the Poor Committee Council of the United States says predatory lending is thriving. Untold pain is caused. Action is urgently needed to curb it. Lenders prey on vulnerable borrowers. Loan sharking is institutionalized.
CRL told Patricia's story. It's typical of others. She's a retired nursing home aide. She had medical issues. She moved closer to family members.
Doing so required paying double rent for a month. She also had relocation expenses. They were more than she could afford.
She sought payday lender help. She took three loans. Two were for $200. Another was for $150. Short-term interest cost her $123.50. She had to repay $673.50.
She had limited means. She couldn't afford it. For nearly two years, she struggled. She paid monthly finance charges. It cost over $2,700 in interest. Her original loan remained unchanged.
Most others are entrapped the same way. Predatory lenders scam them. They're on their own without help. Getting in bed with loan sharks leaves them unprotected.
Lenders offer a lifeline, they claim. They use it to scam unwary borrowers. They entrap them longterm in debt. Their business model prioritizes usury.
Variants of payday lending are longstanding. Long before credit cards and other current practices, "salary lenders" offered one-week loans. They did so at 120 - 500% APRs.
Illegal practices followed. They included wage garnishment, public embarrassment, extortion, and threats of job loss.
States tried curbing abusive practices. Usury rate caps were imposed. Some worked. Some didn't. Clever lenders find ways around laws and regulations.
Post-WW II, mass-market consumer financing grew. Wide-ranging credit products followed. They included mortgages, credit cards, and other ways to stimulate purchases.
State laws were inadequate. National standards were needed. They weren't forthcoming. Regulations were eased. Federally insured depositories, mortgage lenders, credit card companies, and other financial institutions benefitted.
Washington freed them from state usury laws. Deregulation accelerated. Developments encouraged modern-day payday lending.
In 1993, it began. Check Into Cash began operating in Tennessee. Others followed. So did exponential growth. Small and larger operators benefit. Borrowers lose out.
Federal law is largely absent. Inadequate protections exist. Dodd-Frank created the Consumer Financial Protection Bureau (CFPB).
Financial reform gave Wall Street a free pass. It's a stealth scheme for global monetary control.
CFPB is pretense. It's more subterfuge than real. It's cover for business as usual. It lets clever operators circumvent rules and regulations.
They take full advantage. They do as they please. They do so with impunity. Consumers get hung out to dry.
Richard Cordray heads CFPB. He's a Democrat party insider. He's a former Ohio attorney general, treasurer, legislator and state solicitor. Obama installed him by recess appointment.
He's a Chicago Law School grad. He clerked for conservative Judge Robert Bork on the US Court for the District of Columbia Circuit. He later did for Supreme Court Justice Anthony Kennedy.
He's part of the system. It's manipulative and dirty. Money power controls it. It shouldn't surprise. Whatever Big Money wants it gets. Expect little help for payday borrowers. Expect more smoke than fire.
On January 7, CRL headlined "(Five) US Senators Ask Regulators to Stop Bank Payday lending." Comments addressed Fed Chairman Bernanke, Comptroller Thomas Curry and FDIC chairman Martin Gruenberg.
At least four major banks make triple-digit payday loans. Doing so replicates others entrapping borrowers. Expect no relief.
Letters don't help. Writing them is useless. They substitute for policy. Binding legislation is needed. None is forthcoming.
Bankers and other predatory lenders are free to keep stealing. They take full advantage. It's the American way. Bipartisan complicity assures it. Nothing in prospect suggests change.
Stephen Lendman lives in Chicago. He can be reached at email@example.com.
His new book is titled "Banker Occupation: Waging Financial War on Humanity."
Visit his blog site at sjlendman.blogspot.com.
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