Tuesday, October 15, 2019

The Problem of Payday Loans

It’s tough to be poor. (I know, for my wife and I were quite poor for the first several years of our marriage.) And some of the poor in this country are even poorer because in times of great need they have gotten a loan (or loans) from a payday lender. 
A Short Introduction
Payday loans are typically small loans ($500 or less) that people can easily get by walking into a business establishment with a valid ID, proof of income, and a bank account. Such loans are generally due for complete repayment two weeks later, or on the borrower’s next payday.
Payday lenders are plentiful in most states across the country. According to this helpful Aug. 2018 online article, there are approximately 23,000 payday lenders in the U.S., almost twice the number of McDonald’s restaurants. In addition, now there are also many online lenders. 
While payday loans might be considered “life-savers” for some people, the problem is the exorbitant interest/fees charged. While the loans provide quick much-needed cash, the national average annual percentage rate (APR) for such loans is almost 400%. (In contrast, last week the average credit card APR was only 17.39%.)
An online investigation of three payday lenders closest to my home here in suburban Kansas City revealed that the interest rates for 14-day loans of up to $500 are from 443.21% to 651.79% APR.
These establishments are often rightly called “predatory lenders,” for many people can’t make their re-payment on time and have to roll over their loans—and Missouri allows up to six rollovers. Consequently, some people end up paying far more in interest than the amount of money borrowed.
An Immediate Goal
The Northland Justice Coalition is a small group here in Liberty (Mo.) where I live. (Northland refers to Kansas City and its suburbs north of the Missouri River.) For the last several months, some of us in that organization have been working on ways to limit payday lenders in our small city.
Because of our work in preparing a petition and obtaining 1,270 signatures, there will be a special election on Nov. 5 giving voters the chance to limit the number of payday lenders in our city and to increase their licensing fees considerably.
On behalf of the group I have written an op/ed piece about this matter for the Clay County Courier-Tribune, our local weekly newspaper, and I am expecting that to be in the Oct. 24 issue.
A Long-term Struggle
Missouri Faith Voices (MFV) is a multi-faith, multi-racial, statewide, nonpartisan organization committed to empowering and transforming the lives of ordinary citizens who have been targeted by unfair policies and practices and oppressed by racial and economic injustice. 
In Missouri, only the state legislature can cap the interest rates that lenders can charge. In 2017 MFV made a concerted effort to get the state legislature to place a ceiling on the exorbitant rates now allowed. But they were unsuccessful in their valiant attempt to get approval for a bill that would do that.
Those directly involved in that effort told me that the payday lenders’ lobbying activities—and their generous contributions to state legislators—make it difficult for any substantial changes to be made.
There are twelve states (and D.C.), including Missouri’s neighbor Arkansas, that prohibit payday loans. But in most states payday lending is legal and in some states the interest rate is completely unregulated. There is a limit in Missouri—1,970%!
For us in Missouri and in many other states, seeking new and just legislation limiting the interest rates payday lenders can charge is of great importance.
In 2006 the federal Military Lending Act capped the interest that could be charged military personnel and veterans at 36%. Surely, that needs to become the law for all.


  1. Local Thinking Friend Bruce Morgan is evidently an early riser as I am. Before 6:00 this morning he sent the following comments about today's posting:

    "Thanks for your efforts in controlling this rampant, unregulated, industry that preys on the poor and does so without moral principles or conscience. It is an abhorrent industry that needs to be highly regulated or eliminated. Keep up the good work."

  2. Then a few minutes ago I received these comments from Thinking Friend Eric Dollard in Chicago:

    "Thanks, Leroy, for your informative comments. Chicago has payday loan offices, but I am not familiar with how they are governed under Illinois law. Nonetheless, the interest rates charged are scandalous and further evidence that the 'system' is rigged against the poor."

    1. Thanks for reading and responding, Eric. According to what I found on the Internet, "APRs for payday loans in Illinois can reach 404%."

  3. Thanks, Leroy. Those who live in Liberty need to go to the polls three weeks from today (Nov. 5) to vote yes. It's the only issue on the ballot, so it will be easy to think the election/issue doesn't matter. It does. That we've let this practice continue without limitations for so long is a sad reflection up on all of us who believe in fairness and justice.

    1. Thanks, David, for your comments. I hope there will be many in Liberty who will read and heed your admonition to vote and to vote Yes on Nov. 5.

  4. While I agree the payday loan industry is not admirable, I question this legislation will improve it. If I understand correctly, the legislation will increase the license fees for a lender and may reduce the number of lenders in Liberty. If a large number of lenders sustain 400% APR, reducing the competition could cause the percentage to increase. Increasing the licensing fee just seems like Liberty wants a cut of the action, and could influence future decisions on the industry to go the wrong way. That is especially true if the lenders pull out of Liberty and cross the highway into Kansas City, which will only accomplish an inconvenience to the borrowers if they are only able to borrow if they can walk to the lender.

    Striving to reduce the maximum loan rate at the state and/or federal level makes the most sense.

    1. I don't usually respond to comments with no name, but these comments raise important points that need to be addressed.

      First of all, the payday lenders in Liberty are not local businesses but part of nationwide establishments. Thus, I think the increase in fees will have no effect on the interest rates they charge. On the other hand, the addition revenue raised by the city will help in providing funds that can and will be used for enforcing "rules" that are already in place but often not followed by the local businesses.

      If the ballot measure passes, there will be only three payday lenders allowed in Liberty. That will cut the number by more than 50%, although that reduction will not happen immediately. I agree, that that means people will just go to those that still remain or somewhere else. That isn't going to solve the problem. And, as I mentioned, there are also online lenders that many can, and will (I assume) use.

      I fully agree with the closing sentence. But that is not something that can be done locally. It is my hope that this local initiative will call attention to the issue in order that there will be more calls for and support of statewide and federal laws to regulate--or to outlaw--payday lending.

      Unknown friend, what are you going to do to help "reduce the maximum loan rate at the state and/or federal level"?

  5. Here are comments from local Thinking Friend Bob Leeper:

    "Thanks for taking up such an important immediate concern!

    "For years, I have assumed payday loan storefronts about the equivalent of illicit drug dealers: entrapping the gullible who have (what they believe to be) emergency cash needs.

    "I recall from Bob Jones University the appeal to DON’T SACRIFICE THE PERMANENT ON THE ALTAR OF THE IMMEDIATE.

    "I am not sure how to deal with these lender-leeches on society. I am reminded of the old joke about the gentleman trying to buy the piano at $5 down and $50 a month. His dilemma was his belief that he could handle the $50/monthly; it was just his inability to come up with the $5 down now.

    "I worked part time at Sears 1955-56 in the credit department BEFORE CREDIT CARDS WERE INVENTED. Folks down on 15th street Truman Road would roam the store and pick out their merchandise and bring the tickets to the Credit Department. The house rule was to not allow them to charge more and extend payments past the expected life of the item. Do not allow folks to schedule out 2 year payments on underwear that would last only 6 months, for example.

    "The poor folks relying on payday loans are subjecting themselves to years of misery as they are forced to keep on paying ... LONG-AFTER THE OBJECT OF THEIR DREAMS ... CAUSING THEM TO BORROW ... HAS LONG-SINCE BEEN WORN OUT OR BROKE AGAIN.

    "Thanks for your efforts to limit the reach of these crooks who make a living off of folks who have it hard-enough already!!!"

  6. And then I received these comments from Thinking Friend Jeanne McGowan in Jefferson City (Mo.):

    "Thank you so much for this great article, Leroy!

    "This issue is one of my most compelling social justice issues. It seems so clearly wrong that most people can understand that it is bad ... and yet ... our current state legislators continue to stop any limits being set. I appreciate your helping educate others on this important issue."

  7. Here are comments from local Thinking Friend Marilyn Peot, who has attended some of the meetings of the Northland Justice Coalition:

    "Thanks for sharing the insidiousness of the 'predatory lenders.' I was appalled at what I heard as I got in on some of the conversations moving toward initiating the ballot. I understand it's the only item put out to the voters. For that I am sorry--how many folks will come out to vote?

    "I'm wondering how many of our churches are stepping up to the plate and forming credit unions or some other way to reach out to those who need loans. Having heard the horror of a few who got hooked by the p.l. and seeing the tears and helplessness I am grateful the Northland Justice Coalition has made such an attempt. I remember Rev. Susan McCann told our group that going to Jeff City is useless. Your notes explain what she said."

  8. Yesterday afternoon I also received these brief comments from local Thinking Friend Temp Sparkman:

    "What an essential piece, well-researched as usual, and passionate. Is there no end to legislatures being paid off?"

    1. Thanks for reading and responding, Temp.

      In addition to legislation needing to be passed for regulating interest on payday loans, there is also legislation needed to greatly limit or prohibit businesses from making donations to politicians--and the latter may be necessary before the former can be done.

    2. Two excellent proposals.

  9. Payday loans have been a big problem for a long time. David Graeber in "Debt: The First 5,000 Years" took a look at them all the way back to the invention of interest thousands of years ago in the Middle East. All the Abrahamic religions ban usury based on their experiences with it. That, however, is only part of the issue. People need enough income to cover normal expenses, and a safety net to cover unusual emergencies. Those were to be gifts or interest-free personal loans. It was in the area of commercial loans that interest was appropriate.

    Personal debt was such a big problem that ancient bronze-age kings regularly issued sweeping debt forgivenesses to keep their economies from locking up. Apparently they had no faith in the "free market" to solve the problem in a good manner. Local UMKC economist Michael Hudson in his latest book ". . . and forgive them their debts" points out that Jesus was a throwback to those debt-forgiving kings, which had been long overthrown by the time of the Greeks and Romans by the economic oligarchs who demanded that all debts must be paid, no matter what. The golden torch of freedom from debt stretches all the way back from the Statue of Liberty to those early debt-relieving kings, kings who had long been overthrown by the "republics" who threw debtors into prison or slavery until debts were paid. When Jesus said "Forgive us our debts as we forgive our debtors" he meant just that, which was the deep reason he was crucified.

    So, in short, the very existence of payday lenders is proof that America is not and never has been what some call a "Christian nation." This is just one more way we are much more of a Roman nation. For a look at how one of Jesus' parables fits with this, see this link: https://en.wikipedia.org/wiki/Parable_of_the_Unforgiving_Servant

    Now, if we were a "Christian nation," perhaps we would have the Post Office have a small-scale banking system in each office, where unbanked individuals could avoid both expensive banks and even more expensive payday lenders, and safely and inexpensively do simple banking operations, including small personal loans, without confronting economic ruin. That, and related labor laws such as a realistic minimum wage might do some serious good.

  10. Local Thinking Friend Bill Ryan, who long worked as a mediator, send the following brief, but pertinent, comments:

    "I've seen the problem as a mediator in Small Claims court. It's very serious, a blight on our economic system."