I’ve written before about how banking laws are for sale [1] (some would say I’ve ranted before). In that post I discussed payday lending. I often hear that payday lending is not predatory and that such lenders must be offering a service, else why would people borrow money at 300%, 400%, 500% or even more?
I also hear people blame the victims of payday lending. Others say the borrowers are at fault for borrowing money at horrible interest rates. Even borrowers hold themselves at fault. When (if) they get out of the trap (and make no mistake, it is a trap with a cycle of borrowing the same money repeatedly, because the costs are so high people have great difficulty paying the debt without borrowing to do so) they still blame themselves for getting into it.
Many borrowers blame themselves for being stupid or taking the ‘easy way’ out. One person I know, when faced with the choice of becoming homeless or getting some money, said she thought the loan was an answer to prayer. “As I prayed for help,” she said, “an ad for payday loans came on tv. I thought God was answering my prayer.” Hundreds and hundreds of dollars later in interest, she thinks it was the devil.
Until it happens to you, or someone close to you, you probably blame the victim, too. “Why would anyone borrow at those rates?” you may ask. For most people, it is desperation. Undoubtedly there are a few who borrow because it is easy and they have no intention of repaying. I haven’t met any of those people, but “never say never” makes me believe there are probably a few.
What bothers me most is that payday lenders prey on the most needy and the least sophisticated. No doubt people of middle income take out some payday loans. But most middle income people have other resources, like credit cards (an unbelievably good deal at 30% compared to 400%), loans from their bank, or from family or friends. If you are in doubt of who the lenders prey upon, consider the location of the lending offices.
I happened upon some comments made by Dr. Steven Graves, a geography instructor at California State University in Northridge, California. I liked the way he logically stated the case, from a geographer’s point of view. Dr. Graves has been doing research on payday lending and has published some of his results. Here is his website [2], check out the “research” link. His maps are fascinating. Dr. Graves gave me permission to use his comments about payday loan victims. Here they are:
One of the problems with strict classical economics (or I should say economists that subscribe to classical economics) is that it (or they) appear to more interested in defending an economic system than the people who must live with it. It can be dogmatic. Some believe that since the economic system is has rational tendencies, the actors within it must exhibit them as well. If poverty or desperation or eviction or ignorance create irrational behavior among the actors with the economic system, then blame should be directed at the irrational victims of the system rather than dare tamper with the divine logic of the system. I’ve seen economists get red in the face arguing this very point.
Luckily, I’m an geographer rather than an economist. I think very few in the social sciences still subscribe to “rational man theory”, and most responsible academics take a more holistic view of politics, economics and society. Unfortunately, since a holistic view is both complicated and not particularly useful to those who benefit from the logic of American capitalism, classical economists remain very powerful in policy circles….but occasionally others get a counterpoint or two in.
For example, any assertion that payday lenders do not target or prey on the poor can be refuted by mapping payday lenders. Payday lenders’ site locations strategies lay bare the business model under which this industry operates, and from such maps its clear that they target populations made vulnerable by poverty, ethnicity, history or occupation (military). Measuring the effect of easy credit in a statewide analysis erases the differential effect such credit has on the variety of groups that live within each state….in geography we call that the ‘ecological fallacy’…but what do geographers know?
What do any of us know? I know the lenders are evil, not the victims.
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