Tuesday, December 1st, 2009...1:24 pm
Payday Lending an Issue in the Next Republican Primary?
Ah, the payday lenders are at it again. Last year, y’all remember that despite a well-financed campaign, their attempt to change the laws to keep their doors open failed at the ballot box 41-59. Now, they have brought on Doug Cole, Chuck Coughlin and Grant Woods on board to lobby the legislature. If they are unable to pass a new law, the law that allows them to operate now will sunset in July, forcing them to close.
This would be too bad. With the shuttering of many sub-prime lenders, this will leave the seamier side of our financial services industry few ways to separate the working poor from their money.
More than one observer has pointed out (even conservative bloggers are a bit leery) that this payday loan troika seems to have a more than coincidental resemblance to Jan Brewer’s campaign team. Brewer doesn’t think this is a big deal. Here she is in the Republic:
“I don’t see any conflict,” Brewer said when asked about the relationship between her political allies and the payday lenders.
Brewer insists she has given little thought to payday lenders, to the point that she said she doesn’t remember how she voted on last year’s initiative.
She’s given “little thought” to it. Hey, why should this issue be any different than any other one?
Interestingly, John Munger has voiced his reservations about the payday loan industry in the past, and was a board member of the pro-business Southern Arizona Leadership Council when they took a stand against the payday lender backed Proposition 200 last year. Munger could make an argument here that he stands with the voters while Brewer’s lobbyist friends are trying to thwart their will.
18 Comments
December 1st, 2009 at 1:48 pm
Thanks for the scoop, Tedski.
If folks are interested in whether Munger remains opposed to the payday lenders’ 400% interest rates, ask him!
http://johnmunger.com/howcanihelp
Add this to the laundry list of problems Jan has…
This could be interesting.
December 1st, 2009 at 3:20 pm
The funny thing is, I voted for the initiative last year, but with the economy as bad as it is right now I’m almost inclined to support these guys (at least until the economy picks up.)
That’s because right now there are an awful lot of people who are relying on occasional, inconsistent or seasonal work.
The state has really slowed down the rate at which they process unemployment claims so a lot of people lose their jobs and it may take them several weeks to begin collecting unemployment. And having no income for several weeks is enough to put a lot of people on the streets, especially if they get evicted from their apartments because zero dollars isn’t enough to pay the rent or can’t buy any food. And if all you can show for sure is that you’ve applied for unemployment benefits good luck trying to get a loan to bide you over at a real bank. And pawn shops (where you can still find any) are bursting at the seams as people hock anything and everything for really low prices just to buy their kids dinner.
I’d agree with cracking down on them, especially the interest rates they charge– but right now a lot of people are in such desperate economic straits that even payday lenders may be able to play a role in helping people get through the recession.
If things weren’t this bad I think I’d be in favor of closing them down still, but at least for the moment I’m having second thoughts about it, in fact if the legislature was smart they’d recognize that given the backlog in the approval of unemployment benefits they might even be able to work something out with the payday lenders whereby someone could submit say, a receipt from DES showing that they have filed for benefits and a termination (firing or layoff letter) from their last job as proof that they are in the pipeline for benefits, and maybe the payday lender agree to not start requiring repayment until unemployment benefits were actually being received. I’d think that level of cooperation from them would probably be a small price to pay for allowing them to remain open.
December 1st, 2009 at 4:22 pm
Interestingly enough Sr. Higuera, when I went to:
http://johnmunger.com/howcanihelp
The very first option listed as a way to help John Munger in his run for Governor was
“Put a “Munger for Governor” bumper sticker on each of your cars”
December 1st, 2009 at 4:55 pm
Eli, do you really think it helps anyone to loan them money at 400-600% interest?
Could they eke out a living charging 30% interest like the banks charge the poor? How about 100% interest? 200%?
I think the pertinent questions are: who owns these usury businesses and to what campaigns do those owners contribute?
December 1st, 2009 at 5:31 pm
Eli, while I appreciate what you’re saying about helping people weather the storm, the payday lenders do nothing of the sort. I tried to argue this point last year when my dad voted for Prop 200 while my mom and I voted against it. These lenders make sense in theory, but are a disaster in practice for ordinary folks.
The exorbitant interest rates just create a cycle of debt that even people with steady employment have a hard time digging out from under. And how do they qualify for a PAYDAY loan in the first place when they have no payday to look forward to. Plus, in my experience (I work with people living in poverty), they also have very little or no other collateral. There must be other solutions and better options.
Times are unquestionably tough, but charging people 4x what you lend them is not a way to help them get out of debt and onto the path to prosperity. Imagine if the interest rate on your car or home was even 50% (just 12.5% the average interest rate that the lenders charge). Would you ever pay off your debt? It’s a vicious cycle.
Payday lending is exploitative, predatory, and ultimately creates more misery than it abates. Don’t believe those silly TV commercials!
December 1st, 2009 at 6:56 pm
If that industry was able to raise 15 million to push their ballot prop I think they could raise tons of money from their members to contribute to a statewide campaign. If you get the maximum donation from hundreds (or thousands) of these guys (and their spouses) that would be huge. And in a few months 98% will not remember. Munger can (and will) bring it up but if the vote on the prop was sorted to only include Republican primary voters it might get more than 50% +1.
December 2nd, 2009 at 12:04 pm
If I lend you $10 today and you repay me $11 next week, doesn’t that seem reasonable?
I have charged you 10% interest over the week. Over a year, that’s a whopping 520% interest. It seems crazy, but that’s how short term loans work. The smaller the loan, the shorter the term, the higher the risk, the higher the rate.
Most of these loans are $200-250, and they charge a $20-50 fee over the course of two weeks.
It’s not evil; it’s just business. If you cap their rates, fewer people will get the emergency loans they need. And if you don’t trust poor people to run their lives, then there’s not much I can say to you.
December 2nd, 2009 at 1:54 pm
Susan and Michael,
Last year when I voted to get rid of them I agreed with you. But with the delays that the state is having in getting people’s unemployment claims processed when they lose their jobs, I believe that your argument becomes irrelevant if someone gets evicted from their apartment and ends up on the street before they start getting their unemployment check (which would probably then never get delivered in the first place.)
In that situation I could see a rational person, aware of the interest rates involved, taking a payday loan to buy another couple of weeks to start getting unemployment.
Unless you have some other plan, such as trying to force landlords to stop evicting people who are waiting in the line for unemployment checks, I think you have little choice.
December 2nd, 2009 at 1:55 pm
Or in other words, payday loans are never a good option, but there are situations where they may be the best of a bunch of bad options.
December 2nd, 2009 at 2:45 pm
Exactly. Removing the least bad option leaves the person worse off.
Sure, some people get caught up in the cycle of debt; but most don’t. In fact, Payday wouldn’t be making money if people didn’t repay their loans.
This is why AZ Dems are getting the reputation for being anti-business. It needs to change.
December 2nd, 2009 at 3:31 pm
There are non-profit organizations that will provide rental and other forms of financial assistance to help people get through these tough times. There are also some banks that will provide short-term loans at much lower interest rates. I maintain my argument that this is an industry that preys on low-information consumers. Folks are going to do what they’re going to do, but payday lending prolongs the amount of time it takes for someone to regain (or achieve for the first time) financial health and security. Caveat emptor, sure, but I’ll call the business practice ethically wrong if that’s how I see it. And that’s how I see it.
It’s not a matter of trusting poor people to run their own lives. That’s an obnoxious and offensive assertion. And these days, there are a lot of poor people who arrived in that state through absolutely no fault of their own. But even if they did make unhelpful financial decisions, payday lending is still unfair and dishonest. It’s NOT just business. These payday lenders are frequently dishonest about their fees, collection practices, and the potential impact these loans can have on credit scores if payments are missed. Besides, financial literacy is not a commonly-held skill, regardless of the socio-economic status. Whether we should always read all the fine print and actually do are two different matters.
A predator is a predator. Just as the legislature continues to try and balance the state’s budget on the backs of those who can least afford it, so too does this industry try to make a buck on the backs off the same population. Reprehensible in government, reprehensible in business.
December 2nd, 2009 at 3:52 pm
michael,
If the non-profits were sufficient then we wouldn’t have people sleeping on the streets. But we do have people sleeping on the streets and some of them are people who are newly unemployed. The homeless shelters we have now are bursting at the seems.
As for banks providing short-term loans, try going to a bank (especially in today’s economy and credit crunch) if you have no job, and your only expected income is an unemployment check whenever the state gets around to processing it.
I suppose the banks could, out of the generosity of their hearts, make homes they have in foreclosure available to people who are being evicted. Yeah, and when that happens I’ll go skinny dipping in Green Bay in January.
I have no quibble with all that you say about the business practices of payday lenders. As I said, I voted to get rid of them only this past November. And if the economy turns around I will be in favor of getting rid of them again.
But right now I think they may end up playing a necessary role (possibly even a constructive one if the industry can be induced to work with the state– imagine that– to help get through the backlog of people waiting to be processed when they lose their jobs.) If you want me to change my opinion about that then figure out a way to fix the backlog at DES and then get the legislature to agree with it.
In closing I’d just like you to consider something: Let’s say that YOU just got laid off. Let’s say YOU have no savings left. Let’s say YOUR landlord is putting you out of the building tomorrow if you can’t come up with this month’s rent. Let’s say YOU have no relatives or other people who will put you up?
Not You? Not anyone you know? Maybe, but it certainly is somebody in Arizona today.
December 2nd, 2009 at 3:59 pm
Or perhaps, when there are no other options, you’d prefer that they go to some guy named Al who will send somebody to cripple their kid if they don’t pay him back?
Put the payday lenders out of business in this economy and Al will be the guy who benefits.
December 2nd, 2009 at 4:09 pm
If payday lenders wish to stay in business, then they should be required to abide by the same rules as other creditors. This includes caps on interest rates (and I think a 19% APR should be the maximum) and fees should be eliminated.
The economy being what it is will ensure that these usurers will still make oodles of money. Just not oodles and oodles of money.
December 2nd, 2009 at 9:09 pm
My Italian side of the family is from South Chicago. In the forties and fifties loan sharking was prevalent. It was a common way for the desperate to try make it through if they needed some short term cash. The local Mafia capped the loans at 10% monthly. If a loan shark tried to “juice” folks for more than 10% a month they would get their arm broken instead of the folks they gave the loan to.
But they had you anyway. Very few folks that were desperate enough to take such a loan rarely could catch up at that rate and they would often have to flee town.
Now they just take your car or ruin your credit rather than break your arm. Payday loans are legalized usury and it is flat out parasitic, especially of those that are in desperate situations.
It’s shameful that it has been allowed to exist as long as it has but when was the last time the current leadership gave a damn about the working class struggling to get by.
December 3rd, 2009 at 8:59 am
What Andy and Matt said. It’s the interest rates and the way in which they dishonestly prey on those in need that are the problem here. Cap the interest rates and enforce honesty (I know, how naive) and I’m all for them staying in business. Financial crises should not be justification for unethical and predatory businesses to thrive.
Sorry, your comment about non-profits does hit a little close to home. We’re doing the best we can to pick up the government’s slack in helping people in need, but our available resources continue to shrink. We’re not a panacea, that’s true. But with the legislature’s rampage to decimate the social safety net, the non-profit sector is becoming the last line of defense from things getting even worse. It’d be nice to have that acknowledged instead of vilified every now and then.
And for what it’s worth, I WAS laid off and unemployed, with my savings nearly exhausted and barely finding temp work a year ago. I know how difficult it is out there, I know it’s gotten worse since then, and I know how lucky I am to have a good job. Had I not landed a decent job when I did, though, I would never have gone to one of those legalized loan sharks. And there are new federal programs just launching now as a result of the stimulus, such as the Homelessness Prevention and Rapid Rehousing Program, that weren’t available to me and those in a similar situation a year ago.
As for speeding up the processing of unemployment claims, I agree that needs to be a major priority (and I think we agree more than disagree on most of this). Unfortunately, the best way to do that is with more staff. But of course when the legislature votes to dramatically slash agency budgets while still barely making a dent in the deficit, there’s little chance of things getting better. It’s a policy strategy that is frighteningly shortsighted and narrow minded.
December 4th, 2009 at 2:44 pm
If lenders are cheating or tricking people, then that’s different. This should be prevented by appropriate regulations. However, capping prices/interest rates is highly damaging. It reduces the profit motive, reduces supply, and forces people to take options that they would not have taken otherwise (crime?) If there were cheaper options, then people would take them. If the person could have used a credit card, taken out a cheaper loan, or borrowed from a friend, then they would have.
Payday is simply meeting a demand for finance that will continue to exist even if Payday were banned. The poor will still get into car accidents, they will still be unemployed, they will still make mistakes with their money.
What will happen without Payday? Who will pick up the tab when the person gets into trouble? We’re assuming a lot of things without thinking this through.
December 4th, 2009 at 6:05 pm
michael:
I agree that nonprofits are doing the best they can with the resources they have available. And I agree that the legislature needs to appropriate more funds for DES so they can get through the claims.
BUT those things are not what we wish they were, they are what they are. The problem as it is TODAY is just too big, thanks to the Great Recession.
Find the resources and get the legislture to fund them, and I’d be back on board with you (as I was when I voted against the payday lenders last year.) But the truth is, the system we have now (and that the legislature is willing to fund now) is inadequate to handle the need.
As I said earlier, I don’t use payday lenders either, but I can see how someone might make a rational decision to do so in the present economic realityl.