Banking laws for sale

August 10, 2006 | By | 4 Replies More

Most American citizens believe that voters elect our state and federal legislators.  They would be wrong.  Elections are rigged by the massive amounts of money that fund them, and legislators are bought and sold in accordance with their campaign fund contributors.  This money does not come from you or me.  We could never hope to contribute enough to sway an election, we just don’t have enough to compete.  The money comes from corporations.  How do I know (besides from the minimal reports politicians must file)?  I know from the end result, from the laws that result.

Imagine yourself a working mother or father.  You work hard everyday.  You earn your paycheck, and like nearly everyone, it is spent when you get it.  If you are a poor family, maybe your optional luxuries include pizza out one night.  If your family is a little better off, maybe it means a real dinner out.  Then a little ‘hitch’ arises.  The electric bill comes in, and because it has been so hot, it is more than anticipated.  Or maybe the car needs new brakes.  Or maybe, heaven help you, someone gets really ill and you have bad or no health insurance.

So you borrow money.  You go to the payday lender down the street.  You know the kind, they are popping up all over the place.  Despite this kind of lending being legal (or thought up) only for the past couple of years, there are already more payday lending stores in this country than there are McDonald’s. You borrow a few hundred dollars from the payday loan store, and the interest rate is 365%.  That is not a typo, THREE HUNDRED SIXTY FIVE percent per year.

That’s right, we have laws that permit usurious interest rates of 200, 300, 400, and believe it or not, I’ve actually seen a loan with an interest rate of 969% interest.  I think the Sopranos only charged 50% and a broken limb as a late payment fee.

The lenders get away with this for several reasons; here are my two favorite:

  1. the lender affiliates themselves with a national bank and/or
  2. the lender has you sign a contract waiving virtually all your rights to hold the lender accountable.

The bank affiliation scheme is an interesting one.  Say I decide I want to start making a bundle by loaning money.  I affiliate myself with a national bank by ‘renting’ their charter.  I pay the bank a little money, a thousand or two a year, and pay a little fee to the state (in one state, the fee is $300 per year), and then put a sign over my door that indicates I am a branch of the Bank of XYZ, and then I start lending money.

Current law, and recent actions by the administrative branches (Office of the Comptroller of the Currency, Office of Thrift Supervision, who monitor banks and credit unions, for example) make it possible for the Bank of XYZ to import into the state where I open my payday lending store, the laws of the state where Bank of XYZ is chartered.  In other words, if you live in North Carolina, it is not North Carolina law that applies to this lending, it is the laws of the state where Bank of XYZ is chartered, or incorporated.  Where is that bank chartered?  Delaware or South Dakota, of course.

Delaware and South Dakota have had a race to the bottom to get banks or thrift organizations to incorporate in their state.  Each one has been stripping themselves of whatever small bit of consumer protection laws they have had in order to entice the bank to file papers in their state.  And to top that off, the administrative agencies that regulate such entities have been in a similar race to entice entities to become a bank vs. a credit union or vice versa. The agency’s budget is based in large part on the number of organizations it regulates, so they do what they can to entice an organization into becoming their type of regulated entity.  It is a lot like two wh***s on a street corner, each of them underbidding another for your business.

So the end result is that you live in a state that has some laws that protect you from this kind of gangster type lending.  But the bullies come in armed with a rented sign that says “Bank of XYZ of Delaware” and they get to use Delaware law.  What does Delaware say about interest rates?  Not much.  It doesn’t say much about anything else, either, at least from the point of what cannot be done to consumers.

How did this happen?  A national bank act was passed in the federal legislature.  Who are major contributors to lawmakers in Washington?  Would you be surprised to hear it includes national banks and credit card companies, their subsidiaries?

Then there is strategy number 2:  have consumers waive their rights to enforce the law.  The payday lenders now use arbitration clauses, waivers of your right to sue, and waivers of your right to a jury. 

In the documents you sign for the loan, and very often extremely prominent (so you can’t claim you didn’t know about it), is a contract term that attempts to bind you to never sue the lender, no matter how many laws have been violated.  The contract you sign says if you have a problem, you can hire a private arbitrator, who is not bound to follow any law of any kind, or even use the facts as agreed by both you and the lender, and requires you to pay arbitration fees (even if the lender has committed itself to pay the filing fee, there are lots more fees involved).  The arbitrator’s decision is final, there is no appeal to anyone.

Even if arbitrators attempt to be fair and impartial, they are bound by several things, including:  the arbitration company’s rules, which seriously limit the consumer’s right to obtain and present all the evidence, and the need to obtain repeat business.  You and I are not going to hire an arbitrator frequently enough that they want to keep our business.  If the arbitrator sides against a particular lender, that arbitrator will likely never have another case with that lender. 

Arbitration clauses are a type of “get out of jail free” card for these lenders.  So not only do they have the laws written for them, if the lender does violate the law, the consumer has signed a contract saying the lender will not be held accountable in a court of law.

Tell me this system isn’t rigged.  

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Category: American Culture, Campaign Finance Reform, Corruption, Good and Evil, Politics

About the Author ()

My life's goal is to make a difference; to help those stuck in the mire of poverty and ignorance. I am an advocate for those who cannot speak for themselves, whether from ignorance, from lack of eloquence or simple lack of opportunity.

Comments (4)

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  1. John says:

    This is sick! I have thought for some time that these scams are exploitative and deplorable (not to mention misleading, look at the commercials for them), but I have not previously seen information to the degree you provide here.

  2. hogiemo says:

    The system is rigged but, not insurmountably. What is necessary is a level of awareness of the types of abuse which are consistently purchased from the various state legislatures and a willingness to do something about it.

    In my senior thesis in political science I wrote of the legislative process in the State of Missouri that; "With few exceptions of good hearted persons, the way to get a bill passed into law is to line the pockets, pad the egos of or get the legislators laid." That was 1980. Since then we have had a spate of ill considered efforts to enact term limits which make the lobbyists even more powerful by eliminating any concern except the next election before you're out. Term limits have been the biggest fraud upon the public and a boon to the monied interests which have all the control of information and money and therefore control of the process. I find the legislatures, state and federal, to be the greatest dangers to life and liberty in America.

    So what do we do about it?

    We make the necessary efforts to make certain that the people become aware and educated about the extent of the corruption of their legislatures. I see a role for a new series of non-profit community foundations which take on the roles of education and raising such awarenes according to the particulars of the interests of their communities. As awareness arises of the scams and lies laid upon the people to wrest control of their lives and government away from them, so too will their tempers.

    After awareness and education, another entity or series of entities takes on the role of politicizing the people such that they take back their power. No non-profit here, and not partisan either. After the debacles of the past six years of the Democrats playing their fiddles as Bush and his ilk have stripped away civil liberties and civil rights, goosestepped us into war, and rolled over on their backs for an occasional belly scratch from Karl Rove like good doggies, I don't trust the current leadership to be any less corrupt or inept than the Republicans. What is needed is a series of new entities which compete to empower the people by creating a series of structural changes which minimze the ability of any given state legislature to endanger life and liberty. We take our issues directly to the people.

    In Missouri, there a two ballot initiatives this November, one to allow stem cell research and one to establish a state minimum wage. The stem initiative is in the form of a contitutional amendment, the wage proposal was not able to be such as the timing and numbers of voters signatures needed didn't jibe. I had hopes that the wage proposal would be constitutional, because those changes which are approved by Missouri voters would not be subject to the whims of corrupt legislators and not changeable without another statewide vote of the people.

    I had hoped there would be another initiative on the Missouri ballot which would mandate a tax increase on tobacco products and constitutionally direct the funds into restoring cruel cuts in Medicaid services to the elderly, single mothers, poor and disabled in Missouri (the ballot initiative is somewhat still alive as proponents only need to find some 274 more valid signatures on their petititions in Missouri's Sixth Congressional District to make the Novemeber '06 ballot). State Republican legislators have declared healthcare access to be a privilege which they enjoy at taxpayers' expense but, the poor are on their own. 90,000 people lost access to healthcare last year and the intiative recognizes healthcare as a human right and funds it outside of the legislative process.

    The other areas where people may look to take action are education and economic development. Each state has a funding formula which gives monies to local schools for elementary and secondary education. In Missouri, we also fund education through local property tax levies. The current foundation formula was changed recently by the Republican legislature and signed into law by the Republican governor which shifted funds fromn urban areas to rural areas. The allocations made matched the composition of the Missouri State Senate nearly exactly with increases where there were Republicans and decreases where there were Democrats (two exceptions, they lost one rural seat and picked up an urban). While there is a lawsuit pending relating to these allocations, the better result would be for a truly representative formula to be established and enshrined into the Missouri Constitution by a ballot intiative (I won't pretend to know what that looks like but, a statewide series of grass roots meetings might come up with one).

    The last governor to take on education and economic development in Missouri was the late Mel Carnahan when he supported and campaigned hard for a state constitutional amendment to issue some $660 million in bonds for education and educational facilities. If we do the same in conjunction with a revamp of the foundation formula, the bulk of the bond monies could be used to revitalize and rebuild local schools educational infrastructure and create tens of thousands of new jobs in construction and affiliated areas.

    We can see that our state governments serve the interests of the people by trusting the people to do the right things. If we take the core issues of what state government must provide to make a civil society to be access to healthcare, education and jobs, the ballot initiative process to make constitutional changes will work. If we take the issues to the people which concern us, structurally make them a part of what government must do, and prevent the arbitrary and capricious legislatures form changing such structure without a vote of the people, then we might see a more truly civil society in our states.

    So, what do we do about the corruption and cronyism in Congress? Hey folks, if we do all that with state goverment, we can vote the right folks in and the wrong folks out. Trust the people.

  3. Erich Vieth says:

    These payday loan shops peddle the financial equivalent of crack cocaine. They are so incredibly bad that Missouri Senator Jim Talent has stepped up to outlaw them: Here's his quote: "We have to step in and stop these predatory lenders from making a quick buck at the expense of the livelihood and future of those defending our freedom." 

    Oh, but perhaps I spoke too soon. Talent's bill to "stop predatory lenders" only stops them from screwing military people! Let's set aside, for a moment, why the pay we give to military people is so incredibly low that our own military people would consider ever patronizing such scum.

    The obvious follow-up question, then is Why. Why, why why, if these lenders are such disgusting fiends, Why don't we outlaw what they are doing to ALL Americans, not just to American military personnel?

    I'm afraid that Deb has already answered this question with the title to her post and her final sentence.

  4. Erich Vieth says:

    If Congress is for sale, who's going to stop the thieves like those described by Deb? Here's a quote from Jim McMillen, publishied in "An Argument Against Arbitration," The Consumer Advocate, Nov./Dec. 1999 at p. 35.

    Remember the Pinto? That was the little car that blew up when it was rear-ended. There is no Pinto now. That isn’t because Ford said: “We’re sorry! We had no idea that our cars would burn people up! We’ll stop making them.”

    In fact what Ford executives did say was chilling: they said…”Let ‘em burn. It’s cheaper to pay off the victims than retool the car…”

    The government couldn’t get the Pinto off the road. Not the President. Not the Congress. Not the auto industry. But the jury did it…The jury is the individuals’ smooth stones to deliver justice against the giants of industry.

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