Thursday, May 1, 2008

Pay-day lenders

A friend of mine who works in the financial sector and is much more of an economic conservative than me asked me what the Colorado legislature was thinking when they were moving to regulate the pay-day loan industry. His contention was similiar to the protests offered by the industry and their supporters, mainly that regulation risked running these companies out of business in the state and that would hurt the borrowers they serve.

I told him that I was suspicious of any "business" that claimed they couldn't continue to do business unless they were allowed to charge 400% (or more) APR interest.

I understand that they may serve a need but I'm unimpressed with a claim that unless they are allowed to engage in legally sanctioned loan sharking then they just cannot possibly continue to do business in this state. That sounds like extortion to me.

Well, the same friend pointed me to this article in today's Wall Street Journal,

Rent-A-Center Inc., a rising power in the payday-loan industry, pressured an Ohio food-bank association into quitting a coalition of activists that advocates a crackdown on the business.

In a series of telephone calls in recent weeks, Rent-A-Center executives warned America's Second Harvest and its Ohio affiliates that Rent-A-Center would yank charitable contributions from hunger programs in the state unless the local food banks withdrew from the Ohio Coalition for Responsible Lending. The coalition has been pressing the state legislature to cap high interest rates charged on payday loans.

That's a disgusting and deplorable tactic. It is sheer thuggery on the part of Rent-A-Center. No one should ever be fooled again by the benevolent rhetoric that the pay-day loan industry hides behind.

1 comment:

rusty said...

nearly all of the neighborhood-type payday lenders are owned by the major credit card companies and banks (Chase, WF, BoA, WaMu) - sometimes discretely, sometimes not so-discretely. Considering absent or irresponsible federal legislation in related issues such as personal bankruptcy and universal credit default, regulation of payday lenders is really a consumer protection issue. There are also child protection, mental health, substance abuse, racial justice, and criminality issues involved anytime you have financially-engineered products which are so blatantly and cruelly designed to exploit people when they need help the most. thanks for following this issue, SPO. I expect we will hear much more about it as the American economy continues to fail to adapt to the dynamic global challenges ahead in this century.