This isn’t consumer protection, this is a gangland takeover.
Okay: Raise your hand if you’ve ever used the services of Payday Loan. No? That’s because you’re an upstanding, respectable citizen with a decent paycheck and a bank account. I, on the other hand, (ahem) haven’t been any of those things for going on 20 years. And since I fell on hard times in California, where the Franchise Tax Board can and absolutely will hoover up the contents of your bank account if you piss them off, even when I had a paycheck I found myself looking for ways to do without banks.
What I’m saying is, even though I never actually took out a loan with them I do know the inside of a Payday Loan. They also cash checks for a fee, and help you wire money to Guatemala or wherever. Personally I’ve always suspected that this is what Warren and her totalitarian pals really object to: Payday Loans (PL in future) makes money less transparent to the government and less susceptible to confiscation. For that reason alone I like it.
Anyway: for a long time, Elizabeth Warren and pals have been railing against the predatory loan practices of PL. Through new legislation in 2010 they built some sort of fake organization called the Consumer Financial Protection Bureau whose principal function seems to be gathering consumer complaints. According to this article, in four years they managed to gather 10,000 complaints. Given that there were some 48 million PL transactions in those four years, this doesn’t seem to indicate a huge problem the government needs to swoop in and fix.
Not that logic or truth have anything to do with it…
One common criticism of the industry is that payday lenders gouge customers by charging a high annual percentage rate (APR)—sometimes “upwards of 390%.” This criticism is misplaced, in part because it misuses the APR concept. Properly used, the APR represents the actual rate of interest someone pays over the course of a year due to compounding, the process whereby interest is added to unpaid principal. However, in a typical case, payday loan customers do not borrow for a full year, and the interest charges do not compound. Thus, there usually is no APR on a payday loan.
For example, if a customer borrows $100 for two weeks, for a fee of $15, then the only way to appropriately express this fee as a rate would be 15 percent ($15 divided by $100). When a payday loan customer rolls over a loan at payday, he has to pay a new $15 fee and is then responsible for repaying a total of $130; the fee could then be expressed as a rate of 30 percent, and so on. Thus, interest costs cannot “explode” exponentially as they can, for example, with a home mortgage, since there is no compounding.
(Lots more at the source.) Easy to see how an essentially penniless person could dig quite a hole here, but that’s the case with any loan from anybody. PL is not, I presume, in business to protect Paulo and Esposita from their own foolishness but they’re also not in business to lose money. The vast majority of these very small loans must be getting paid back, and without resort to broken kneecaps. Warren would have told us about broken kneecaps.
So Payday Loans exists to serve the financial needs of poor people your average bank doesn’t give a damn about. Elisabeth Warren, who loves the poor so very much…
…objects to this for some reason. Could one possibly be forgiven for suspecting that the stated reason isn’t the real reason? The U.S. Government never shows any aversion to predatory lending when they’re the lender.
The Consumer Financial Protection Bureau is inching closer to eliminating private payday lending with restrictive new rules and, some advocates hope, paving the way for the U.S. Postal Service to take over these banking services.
The agency’s liberal supporters, including Sen. Elizabeth Warren, D-Mass., long have wanted to replace the payday lending industry with a government-run alternative. Now, they are pushing to include language in the Democratic Party platform to add banking to the line of services provided by the U.S. Postal Service.
Imagine it with me, Mr. and Mrs. America. The post office, which has practically driven itself out of its own centuries-old monopoly through incredible ineptitude, would now be granted…
“nothing fancy, just basic bill paying, check cashing and small dollar loans.”
What could possibly go wrong?
And of course when it inevitably goes horribly, unspeakably wrong, they’ve got you to bail the whole mess out! You wouldn’t mind that, would you?
This isn’t a new thing, Warren and friends have been chipping away at PL for as long as I’ve been aware of it and the takeover idea is at least five years old. But one thing you can afford when you’ve got a lifetime seat on the taxpayer’s back is time and patience. Lately it seems to have gathered some momentum.