Friday, April 3, 2009

The influence game: Payday lenders thwart limits

This story posted on AOL via the AP last evening:

"WASHINGTON -The payday loan industry, threatened by Congress with extinction, has deployed well-connected lobbyists and hefty sums of campaign cash to key lawmakers to save itself.

The strategy has paid off.
Now a top Democrat who once tried to ban the practice is instead pushing to regulate it — a result, he says, of the industry's lobbying clout.

The lawmaker, Rep. Luis Gutierrez, D-Ill., says his bill does have crucial protections for borrowers and represents the best deal he can manage in the face of the industry's aggressive lobbying. Consumer groups are condemning the bill as a loophole-riddled gift to the industry. "

I abhor payday lenders. They are nothing more than government-sanctioned loan sharks. They preach about helping folks in tight binds - those without credit cards or the ability to get a regular moderate-interest loan from a financial institution - those who are the bottom of the socioeconomic rungs of the ladder - all these are whom they claim to be helping, while charging hundreds of percent in interest per annum. The lenders defend themselves by saying that their average customer borrows from one payday to another and simply repays the loan. If that were truly the case in every or even in most instances, I might not speak out so strongly against it.

It so happens that most of the borrowers simply cannot afford to pay the entire loan back, so they roll it over to the next payday, paying a fraction of what they owe - enough to keep the lender happy - and hence accrue the exhorbitant interest amounts.

I once spoke with a former Utah senator who was the proprietor of such establishments - in fact, we spoke on a few occasions about his nefarious choice of business. He indicated that he was indeed helping middle class people to get through a short-term financial crunch, and even told me a story about a man making $60k a year who had forgotten an anniversary and allegedly did not have other means to purchase a present for his wife - as if!

He did recognize, however, that the powers were converging over his payday loan businesses in order to make the interest rates more equitable. He shared that he was divesting his interests - smart move, but based on this story today, the industry will continue to thrive.

Here is the link to the story:

Voters need to pay close attention to how their elected officials voted on this issue - 2010 is not that far away.

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