Regulation Is Long Over Due For The Payday Loan Industry
Stand on any corner of any ‘hood in America and you’re likely to see three things: no, it’s not a liquor store, Chinese take-out or Church, but rather a check cashing center, a pawn shop and a payday lender.
Those three establishments have become the unofficial backbone of the alternative banking system, which mostly operates in lower-class neighborhoods in America. They have become the symbol of the type of predatory high-interest lending practices that scam mostly poor and working class people in ways that the middle class and well-off will never know.
So it’s no surprise that 20 states have either imposed restrictions on the amount of interest and fees these institutions can charge, or have passed laws to ban them completely from operating. This is particularly true of the payday loan (also known as cash advance) industry, which has become notorious for participating in some extremely shady business practices.
However, some of the more unethical high interest payday lenders have found various loopholes around these oversights and bans. Recently, a group of payday lenders formed associations with some Native American tribes and are engaging in legal fights in California, New Mexico, West Virginia and Colorado to get claims for being “tribal enterprises.” This association means that payday lenders can claim tribal-nation sovereignty, which allows them to operate outside state oversight and make loans to non-Native Americans living far from the reservations.
Besides affiliating with tribes, some payday lenders have opt to operate online, mostly from offshore headquarters so that they are completely outside of any U.S. regulation.
Many Americans, particularly those who don’t live paycheck to paycheck and have access to legitimate banking institutions, aren’t familiar with the payday-loan industry. Those people should consider themselves lucky. But there are some 40 million who make less than $30,000 a year that aren’t immune from payday advance companies. These companies offer short-term loans that are mostly small loans that average a few hundred dollars for a few weeks while charging annual interest rates for as much as 500%.
In other words, if you borrow $200 today, you might end up paying back double – if not five times that amount – by the end of the loan term. Some payday lenders offer these loans against federal and state tax returns, unemployment checks and car titles, so if the loan is not paid back in time, it could result in late-night repossessions by lenders.
Now that we see how greed and deregulation had a hand in creating the subprime mortgage crisis, it’s time that we regulate the hell out of these institutions and put an end to the poverty industry once and for all. Even though credit is harder to come by, the working poor still continue to be big business for much of the payday lending industry.
Charing Ball is the author of the blog People, Places & Things.