Five minutes is all it takes to help cap Missouri payday loans at 36%

As I indicated here, Missouri is considering a 36% rate cap for payday loans. Currently, payday lenders often charge 400% and 500% interest on such loans that are financially devastating to the poor and the working poor (Missouri’s 9% “usury” cap does not apply to payday loans). Bill 2116 is now pending before The House Committee on Financial Institutions, which is chaired by Republican State Representative Mike Cunningham. This important bill will not get a hearing unless Mr. Cunningham decides to grant a hearing, at his discretion. This single bill, HB 2116, “combines two bills filed by Representative Mary Still in January into one bill dealing with both annual percentage rates (APR) caps and restrictions of nursing homes offering payday services to employees.” Here’s how you can help. Please consider writing to Mr. Cunningham today, requesting him to hold a hearing regarding Bill 2116, to consider capping Missouri payday loans at 36% interest. Your letter can be two sentences, or you can spell out your reasons in more detail. Mr. Cunningham can be reached at mike.cunningham@house.mo.gov . His snail mail address is:

Representative Mike Cunningham 201 West Capitol Avenue, Room 411-2 Jefferson City MO 65101 Office Phone: 573-751-3819 Fax: 573-526-1888 Even a small number of emails, faxes or letters will make a big difference. If you want to be part of a citizens’ movement cap interest rates of payday loans at 36%, please take a moment to write to Mr. Cunningham. I can’t emphasize enough that your single email, fax or letter could be the difference between this bill getting a hearing, or nothing being done. As for the detailed reasons for imposing a rate cap, see my earlier post on the proposed legislation. I have also inserted (below) a letter written by John Campbell (an attorney with whom I work). Thank you so very much for considering this. Please do consider sending me a copy of any emails you send to Mr. Cunningham. [Letter from John Campbell to Mr. Cunningham]

Representative Cunningham:

I am writing to request that the House Committee on Financial Institutions grant a hearing on Bill 2116, a bill to limit the interest rate on payday loans to 36%.

I have extensive personal experience with payday loans. I am an attorney, and I spend much of my time representing consumers. In the course of my practice, I have talked with dozens of payday loan borrowers. Their stories are remarkably similar. Payday loan borrowers are generally low wage earners with high school degrees or less, and they are typically in desperate situations when they go to a payday lender. In my experience, payday loans lead to create a debt cycle that is difficult for most borrowers to escape.

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Continue ReadingFive minutes is all it takes to help cap Missouri payday loans at 36%

Time for a national usury law?

First Premier Bank has just introduced its new 79% interest rate sub-prime credit card. No, that's not a typo, and some experts expect to see more credit cards with sky-high interest. Which makes me again bring up the topic of a national usury cap. Thomas Geoghegan recommended such a cap last year, in his article in The American Prospect. He suggested a credit card interest cap of 12% and a law completely barring payday loans.img_1180 I have filed several class action suits against large payday lenders (here's a post on one of those suits). These lenders often argue that people need these 400% interest loans for short term emergencies. At what cost, though? In my experience, these lenders are commonly stretching out these "short term" loans for many months. People who borrow $500 will pay $2000 in interest over the year and they will STILL OWE THE $500. Many states allow payday lenders to charge in excess of 1000% interest. These loans suck the very life out of working class folks. They amount to financial crack cocaine, because people often end up taking out a second, and a third payday loan in order to pay off the first one. It's a terrible mess and it's ruining lives. That's why 13 states have passed laws making sure that payday lenders cannot operate in those jurisdictions. It's time for the other states, and Congress, to get with the program. To put this all in perspective, remember the stories about "loan sharks?" Those were the good old days. "Simple nominal annual interest rates on extortionate mafia loan shark debts averaged 250%." Syndicate Loan-Shark Activities and New York's Usury Statute, 66 Colum. L. Rev. 167, 167 (1966). And here's another irony. The Bible clearly holds that usury is a sin comparable to murder. Usury is prohibited by Exodus 22:25: "If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.” Usury is also prohibited by Leviticus 25:35-37. In spite of these Bible quotes, if you want to find lots of payday stores and payday lenders, look for geographical areas where you'll also find conservative Christians. That is the finding of Steven M. Graves and Christopher Peterson, in a law review article entitled "Usury Law and the Christian Right: Faith-Based Political Power and the Geography of American Payday Loan Regulation," 57 Cath. U. L. Rev. 637, 640 (2008):

We conclude, with a high degree of statistical certainty, that states with powerful conservative Christian populations tend to host relatively greater numbers of payday loan locations per capita as well as a greater commercial density of payday lenders. These findings propound a tragic and sad irony. Those states that have most ardently held to their pious Christian traditions have tended to become more infested with the progeny of money changers once expelled by Christ from the Hebrew temple. Legislators in those states, who have effectively used biblical principles to shape their legislative agenda on social and cultural issues, have failed to consistently apply biblical principles to economic legislation.

All it would take for Congress to outlaw payday loans is to write up a bill, have a majority of members of Congress approve of it, and then refer it to the President to sign it. But that can't happen these days because the financial services industry pays our politicians huge amounts of money so that they WON'T sign these sorts of bills. And, of course, with regard to Congress, the banks "frankly own the place."

Continue ReadingTime for a national usury law?

Democrats: not the party for economic reform

In an article titled, "The Trouble with Democrats," William Greider of The Nation documents the many ways in which the democrats lack the moral will to rein in predatory lending and enact real economic reform. How about modestly adjusting the bankruptcy code to allow 1.5 million people to keep their houses? Forget it. How about capping payday loans at 35%? No way. You see, most Democrats are scared of payday lenders unless the interest cap is 390%. How about putting meaningful rate caps on credit cards? No way, because the financial services industry doesn't want that. This article is a thoroughly disgusting review of Democrat spinelessness and a reminder about who pulls the strings in Washington. Hint: it's not The People.

Continue ReadingDemocrats: not the party for economic reform

The big problem with legalized usury

In his recent article called "Infinite Debt" (in the April 2009 issue of Harper's Magazine), Thomas Geoghegan connects the dots to point out the terrible consequences of having a nation devoid of interest caps. First of all, this situation is something extraordinarily new. The law against usury had "existed in some form and every civilization from the time of the Babylonian empire to the end of Jimmy Carter's term." In many ways, however, it no longer exists in the United States.

Here's what happened: the financial sector bloats up. With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that Capitol rushes out of manufacturing and into banking. When banks get 25% to 30% on credit cards, and 500 or more percent on payday loans, capital flees from the honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn't innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs. All of this used to be so obvious as not to merit comment. What is history, really, but a turf war between manufacturing, labor and the banks? In the United States, we got rid of manufacturing. We got rid of labor. Now it's just the banks.

Geoghegan explains that this is why the middle-class is shrinking. In 2003, financial firms accounted for 40% of the profits that accrue to US corporations. Geoghegan points out that this is more than double the share of the financial industry (18%) when Ronald Reagan left office. As Geoghegan explains, "we use our credit cards to help liquidate our own jobs, the kind we used to have in Michigan and Ohio. By little teaspoons, the people who go into debt for kitty litter pull a bit more capital out of one sector and pour it into another." Geoghegan correctly explains that the dam broke when the United States Supreme Court issued its opinion in Marquette National Bank v. First of Omaha Service Corporation, a decision issued in 1978. In that case, the Court held that Minnesota could not cap the credit card of a Nebraska bank because that bank was subject to the National Banking Act of 1864. Therefore, only the state where the bank is located (headquartered) can set the interest rates charged by that bank. In other words, all you need is a few disreputable states (such as Nebraska) for there to be effectively no interest cap on any bank in the United States willing to set up its headquarters in that state. Given that banks can now charge all kinds of hidden fees and penalties, in addition to interest rates at 25 to 50% (or even 500% for payday lenders), they no longer really want us to pay off those loans. Rather, "they want us to be irresponsible, or at least to have a certain amount of bad character." To put this on perspective, think of the terrible old banker, Mr. Potter, featured in the Christmas classic, It's a Wonderful Life. Mr. Potter drove a very hard bargain. He wanted everyone to actually ay off their loans. What's fascinating is that Mr. Potter was lending out money at the exorbitant rate of 2%. But now Mr. Potter would have more choices. If you could charge 35%, he might not necessarily think, "the law must be repaid"-at least not right away. And if he can charge 200%, he actually may not want the loan ever to be repaid. Therefore, we have a terribly bloated financial sector that employs immense numbers of people to do... what do they do? I do remember only about 1/3 as many people working in the financial sector 30 years ago (or so it seemed). It didn't seem like we needed these kinds of folks back then, certainly not so many of them. I really wonder whether most of these people are adding any value to society by doing what they do, or whether they are simply participating in an insane "arms race," by which they fight to get ahead of each other in order to suck vast amounts of money out of the lives of regular folks. Sounds like it's time to starve the beast by putting a 20% cap on all interest rates. That's what Geoghegan recommends.

Continue ReadingThe big problem with legalized usury

How do payday lenders get away with charging such high interest rates?

The topic of usury laws and payday loans arises frequently these days. Payday lenders commonly charge interest rates of 300%, 400% or more on their loans to desperate consumers. Why do I suggest these consumers are desperate? It’s because they are writing postdated checks to payday lenders, agreeing to give up a large chunks of their next paychecks, and paying exorbitant interest rates in the process. How many people who are not financially desperate would be willing to sign away the proceeds of a future paycheck and pay 450% interest for this “privilege”? With repeated real-life scenario as the backdrop, the question often arises: do usury laws exist anymore? This topic has been addressed by Christopher Peterson in a comprehensive law review article entitled “Usury Law, Payday Loans, and Statutory Sleight-Of-Hand: an Empirical Analysis of American Credit Pricing Limits.”

It’s not hard to determine what motivates Peterson’s work. He writes that the American consumer is now dealing with “a new, largely unregulated credit marketplace.” The center of the storm is the payday lending industry which, “despite spending millions on lobbying and public relations, is at the center of an inferno of rage and public controversy.” Peterson takes time to discuss the history of usury laws throughout the history of the American republic. Usury laws, according to Peterson, have “historically been the foremost bulwark shielding consumers from harsh credit practices.” At the time our country declared its independence, no state had an interest of greater than 8%. Benjamin Franklin warned of …

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Continue ReadingHow do payday lenders get away with charging such high interest rates?