Wednesday, March 10, 2010

Bob Corker and the Criminal Payday Loan Industry

The New York Times is reporting that Tennessee's Republican Senator Bob Corker has been successful in lobbying (every pun intended) the Senate Banking Committee and its Chairman Chris Dodd (CT) to remove draft language from new financial rules that would regulate the Payday loan industry. Without question, the scope of financial skeeziness that has afflicted the US in the past ten years or so has been startling - from the unconscionable excesses of AIG, the unregulated world of derivative trading, predatory and dishonest lending practices in the mortgage industry, the willingness of too-big-to-fail banks like Citigroup, Bank of America, and the rest to loot the US treasury, etc. And yet, for many Americans, the most egregious forms of financial exploitation have their origins directly in the willingness of the Payday loan industry's exuberance in profiting off of people's desperation.

Payday loan companies have thus far existed as unregulated territory, at least from the federal perspective. While it's true that some states have taken a harder stand against the exploitative practices of lenders charging, as the Times reports, as much as 400% annualized interest rate, its a mishmash of regulation. And, the payday loan companies exploit this reality by setting up shop in the states with the least regulations, and in the neighborhoods with the most people without access to reasonable credit. If you've lived, for example, in a city alongside a major military base, payday loan shops are ubiquitous just off base, targeting poorly paid enlisted men. It seems that transitions between "good" and "bad" parts of town are invariably marked now by the appearance of payday loan and check cashing businesses, even more so than moving sides of the track.

It's not just the truly usurious interest rates and predatory geographic practices of the industry that make it evil, but also other aspects of their loan terms. For example, usually one can't amortize repayment, and must redeem the loan in a lump sum. As evil as credit card companies can be (see the opening week on any college campus as the vultures descend to peddle cards to unsuspecting and newly-freed freshmen, all with the lure of a free soda), they can't even hold a candle to these predators.

Corker receives a fair amount of money from the payday loan industry in part because Tennessee's lax regulations make the state a welcoming home to the business. And now he's doing his state proud, standing up for the poor, threatened, unrepresented, and thoroughly reprobate interests of these exploiters of the true poor, threatened, and unrepresented.