The exploitation of the poor through payday loans in America is one of the most underreported stories of 2013, even within the alternative media world. I first wrote about it and the role our big bailed out banks play back in February in my piece: TBTF Banks Enter Payday Loan Business with 500% Interest Rates.
The problem with stories like this getting such little coverage, is that the trend will invariably spread like a cancer without public awareness and outrage. Take Pennsylvania for example. The state has laws that make payday loans illegal, but state legislators want to do away with this. They made their first attempt back in 2012 with House Bill 2191, which never made it to the floor for a vote. Not being the types to take no for an answer, the state legislators are back. This time state Sen. Patrick Browne is looking for co-sponsors for a bill that would allow punitive interest rates under the guise of calling it micro-lending. From the Post-Gazette:
“A rose by any other name” equals a rose.
“Put lipstick on a pig” equals a pig.
“Micro-loan program” equals a predatory payday loan/debt trap.
Seeking to protect vulnerable people from being trapped in a vicious debt cycle, Pennsylvania has long outlawed the usurious practice of predatory payday loans.
However, lenders are trying to undo these limits. Last year, House Bill 2191, which would have undone this 100-plus-year-old protection, thankfully never made it to the floor for a vote.
While no such legislation has yet to be introduced, state Sen. Patrick Browne, R-Allentown, is seeking co-sponsors. Rather than calling it “payday lending,” it is touted as a “micro-loan program” promising a “reasonable annual percentage interest rate” to “eliminate the endless cycle of debt,” to “strengthen consumer protection” and to “protect our military families and veterans.”
If you’d like to read Sen. Browne’s proposal, click here, but I think the first bullet says it all.
- Reasonable Annual Percentage Interest Rates – The bill limits each loan to a simple annual interest rate of 28%. Each loan would have an application fee and a processing fee of no more than 5% of the loan amount respectively. Application fees would have further dollar caps based on the size of the loan. Both fees have been previously authorized by the General Assembly for other loan products or the concepts have been accepted by Federal regulators such as for federally-regulated credit products such as short term loans by credit unions or annual fees for credit cards.
Yep, bailed out banks can borrow for basically nothing from the Federal Reserve, but peasants in PA should feel grateful for “reasonable” 28% loans. What a feudalistic joke this nation has become.
Full Post-Gazette article here.
In Liberty,
Mike
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Aren’t these transactions voluntary?
I really don’t care if lenders are getting 1000% interest as long as no one is forced to borrow.
Really, in a world where interest rates are rigged to 0% for the bailed out banks? I sure as heck have a problem with it. I wouldn’t if we had free markets for interest rates at banks. We don’t.
Still, no one is forced to go to a “payday” loan place.
Same thing with credit card rates. Don’t like them? Don’t use them.
I’m not so sure that they aren’t forced. Since the Benny-bux are finally spilling over the dam and into more pedestrian markets other than the NYSE, you may get the opportunity to comprehend my point, sooner than later.
I also don’t like that interest rates are rigged to 0% for the bailed out banks, but I don’t see what that has to do with loans to people with low credit scores other than envy and resentment.
I agree that a free market for money and credit would solve this problem. The solution is to abolish the Fed and implement a 100% gold reserve standard.. The US had no central bank from 1836 to 1913 and it did fine without it.
This essay reminds me of an anecdote about Jack London. A journalist went to the Klondike to interview him and found Jack playing at what was obviously a crooked roulette wheel. The journalist asked, “Don’t you know that this is a crooked game?” London replied, “Of course I know that it’s a crooked game, but it’s the only game in town.”
Is Michael Krieger ready to loan to the poor in Pennsylvania? If not, to whom does he suggest poor people go for loans?
What’s more harmful to the poor, charging 28% interest on a loan or cutting off poor people from loans altogether? Do poor people use these lenders because they (the borrowers) are morons or because these lenders are the best option available to them?
An interest rate of 28% on a loan doesn’t mean that the lender will collect the principal plus 28%; the lender may collect 28% of zero. The default rate on these loans is much higher (I don’t know how much higher) than the default rate on loans to more credit-worthy people.
The situation is similar to the large amount of defaults on sub-prime mortgage loans that was the immediate cause of the 2008 financial meltdown. Why did the sub-priime borrowers have higher interest rates than alt-A or standard borrowers? The answer should be obvious. Sub-prime borrowers have higher default rates and charging those borrowers higher rates to compensate for the increased risk of default is a rational business practice.
Mr. Krieger, do the poor in Pennsylvania have a better option? If so, what is it?
No people aren’t forced to get a payday loan BUT! The problem is like they did here in California being poor it doesn’t take much to cause panic, an outrageous PG&E bill in winter with a threat of it being shut off and with adds and payday loan places everywhere and they will go there God Help All if they do I’ve been there and with no way out once you start one slip and your in defaults and then when its the last thing you need they garnish your paychecks so stop them before they start no state anywhere needs these places when they are on the internet as it is you can get one that way also the government is taking enough money from us along with the banks its just one more way to take everything from all of us don’t let them spread kill the disease now
That was a fine rant that you gave. What do you suggest poor people do when they need a loan?
There is a better way and those loans are not it how about people getting together and helping each other out just because your poor doesn’t make the poor lower class people alot of rich people could use a lesson in humility just because they have money doesn’t make them better and I’m sick of the idea that its ok to give loans with outrageous interest rates and since you can’t charge off these payday loan in bankruptcy court then the chance that you won’t have the full amount to pay it back every two weeks then your in trouble when others get together to help each other vet by just maybe we can make it for while anyways
That was another fine rant, but you have not answered my question. What do you suggest poor people do when they need a loan?
I live in a developing country. Money lending is quite free market–i.e. anyone can hang out a shingle. Collecting is the issue.
I believe the legal limit is 3% a month. But 5% or more per month is not uncommon.
Of course many people get in trouble with these loans. I believe jail time is a possibility for defaulting. Also, many of the higher interest-rate chargers are likely putting ‘black money’ to work, and one can face worse than jail time for not paying.
Still, everyone knows the score, and no one feels outrage over it. It’s refreshing not to have the expectation of nanny gov’t to ‘make things right’.
There are lending institutions that charge lower rates, more in line with the US, for those who can qualify. One condition of qualifying is earning one’s income in the ‘formal’ sector, i.e. reporting to gov’t and paying taxes.
What would happen if all usury was made illegal? It would be true to say that banks and these firms would lose income, but what would happen generally? The banks would no longer be able to make money from the suffering of individuals, so they would have to invest in other areas; in businesses and individuals making money, for example. They would be forced to support the economy. They would be forced to only make positive investments. Would outlawing usury be such a bad thing?
http://speedyloansearch.com/payday-loans/
What do you suggest poor people do when they need a loan?