Obama Administration Takes on Payday Lenders

By Don Rollins

East Colfax Avenue between Broadway and Downing in Denver is not what it used to be. A once bustling thoroughfare where the well-heeled strode with confidence, so far from those halcyon days is the area that it was dubbed by Playboy Magazine as “the longest, wickedest street in America.”

Deserving of that inauspicious label or not, there can be no doubt that East Colfax’s 60-year “white flight” economic freefall has decimated landscape and lives, resulting in whole blocks of empty storefronts that cater to some of Colorado’s most marginalized citizens.

Which of those businesses does the most immediate harm to residents of the high-crime corridor is open for debate; but in terms of the long-haul, the hands-down winner has to be the payday lenders that seem to populate nearly every block.

Payday lending is the practice of spotting a lendee a sum of money in return for an ungodly cut of his or her next check. It’s a devil’s deal, purportedly offered on an emergency-only basis yet has instead proliferated into what amounts to legalized loan sharking and all too common chronic indebtedness.

Approximately 19 million Americans are at any given time on the payday loan hook. Sanctioned in all but 15 states, the number of storefront operations is an estimated 22,000 and growing – this despite staggeringly high rates that depending on state, lender and length of term range between 150-900% APR.

Given these numbers, it follows that prior to the latest economic downturn payday lending was the province of the working poor and low-income Social Security recipients. But upside down mortgages in an upside down economy have since sadly expanded the loan pool.

So widespread and lucrative have these short-term/high-interest loans become that even Big-Banking opportunists like Wells Fargo and US Bank are risking public criticism and federal intervention in order to get a taste of the online payday action.

But such predatory practices exist only at the pleasure of the states in which they’ve set up shop. On that count, regulatory measures are all over the map. Literally. While eight states have banned payday loans, a July 2012 Pew Center study found that another 28 – including California – qualify as “Permissive”, meaning that they sanction single-repayment loans with APRs of 391% or higher.

And even in those states in which regulations are imposed, protective laws are subject to the makeup and will of the next wave of legislators to resist pro-payday loan lobbying.

Still, there is an encouraging if thus far anemic federal response to the problem of state-sanctioned payday lending. The newly created Consumer Financial Protection Agency (CFPB) has been tasked with monitoring and addressing shady lending practices and products. While payday loans are a subset of their main mission, the agency does include them in their scope of services.

This is just the kind of top-down intervention necessary to put a dent in all the state legislative inertia and special-interest influence. Yet inexplicably the CFPB has not been given the authority to do what is most needed in order to protect the financially desperate in those states without due regulations: cap interest rates.

There is no impetus for the payday lending industry to reform of its own accord; nor is there enough federal moxie to make it happen soon. But in an era of recurring fiscal-cliff, fear-based budgeting we should be encouraged that the Obama administration has taken a first toward holding to accountability so harmful a practice.

For more on the CFPB go to www.consumerfinance.gov/.

Don Rollins is a Unitarian Universalist minister in Eugene, Ore. Email donaldlrollins@gmail.com.

From The Progressive Populist, February 15, 2013