"Those low-income consumers are then trapped in a never-ending cycle of high interest rates, excessive fees, and ruinous credit practices, with annual compound interest rates of up to 400 percent."

I've made computations for consumer protection attorneys that show APR
in excess of 700% for some of these short term-loans Mafia loan sharks charge lower interest.

These bottom feeders truly prey on the poorest and least-educated among
us and should be tightly regulated.

You've gutted your argument by bringing in the tea party hate-mongers. Apples and oranges big-time. Fat-cat Republicans taking campaign funds from lobbyists is your point.

Theresa,

Excellent commentary... Elliehausen, Karger, Caskey, Barr & JA Fox have some done some great work along with Stegman....

Another piece is how embedded these "sanctioned vendors of usury" are clustered in communities of color....

From a systemic perspective (people of color's experience has been one of rejection and predation. For centuries people of color did not qualify for bank loans; segregated away froom access to capital (like women); By the 1980's, the Reagan revolution de-regulated banks and the model changed....

The most profitable elements of the business models (credit cards, pawn shops, payday and short-term lending)were people with little financial experience, education or people with poor credit histories from which to extract and generate higher fees...
Going from feeling left out of the credit industry to being preyed upon by it is one the largest untold stories in personal finance....

Thanks again for being up this huge issue! Support the CFPA!

pdfryer,

Her argument is not gutted; regulation or lack of regulation is what has made possible these types of usurious transactions...

Tea Party contributors yelling that they want government to take less of a role misses the entire point of capture.... It is not reducing government, but changing it to be more effective for their families...

Only by understanding the last 30 years can people begin to see the larger narrative of de-regulation, privatization and cutting social supports which is essentially dismantling the New Deal... This would be fine if all of us were conscious of the dialogue and the choices that needed to be made, but we had Republican's gutting government by spending too much, creating multiple wars, and selling free markets (along with many democrats who masquerade as centrists)....

Teresa got this one right; sometimes apples and oranges can be linked by being a fruit; this would require less compartmentalized thinking....

There's actually a very simple solution to the whole problem that will never be implemented. Apply Douglas Adams's idea for insurance-company executives: the death penalty for lobbyists.

Now, admittedly, there are a few minor obstacles to overcome . . .

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Bodenwieser,

Go back and look at voting records at both State and National Levels on payday lending.... It wasn't even four years ago that military personnel were targeted for usury (on leave)and the government passed an act to restrict interest rates, the number of loans, and car title scams (mostly in the north carolina).... But there was opposition... Many republicans rely on their connections to business interests to elected (connections from the business round table council, chamber of commerce, ABA, and many other embedded organizations that are pushing free trade agendas which include (Gotcha Capitalism or Payday Lending/Usury)

Remember, republicans and democrats helped to repeal the most fundamental elements of Glass-Steagall; a good example is the Marquette decision in late seventies; changed where banks could be domiciled and led to mobile interstate charters which meant that one states' cap on usury (North Dakota) could be imported to New York (Walter Wriston at Citibank used this effectively)...

Lets not confuse 'most republicans' here; because a majority of conservatives repeatedly report being more frustrated with a purchased and incompetent government than an exploitative and usurious form of corporatism... where elected officials are paid off by the highest bidder (payday lenders with deep pockets)...often there is little dialogue about how republican leaders have gutted government to their advantage... big tax cuts to the wealthy, costly wars, and huge spending increases sanctioned by congress (spineless republican-lite democrats masquerading as centrists)

Most republicans applaud making profits; they do not call it usury, though. In a short term, quarter to quarter world where our country manufactures very little and where innovation is the technologic manipulation of mathematical algorithms for profit; we can clearly draw a straight line between republicans' use of economic theory and free market (Freidman) and usury... Its all there to see if you choose to read about it

Howard Karger
Yves Smith
Jacob Hacker
Elizabeth Warren
David Cay Johnston
Tamara Draut
William Black
and many others

1) While I abhor the payday lending industry, I don't think that it should be the Federal Government's place to regulate it. The should be left to the states or local authorities.

2) "lack of regulation is what has made possible these types of usurious transactions"

No. What makes it possible is this atmosphere of entitlement we have here in the USA that leads people to live beyond their means and spend money they don't have. If folks lived within their means and systematically put money aside for emergencies, most of the time they could get by without a loan. But, when they did need a loan they could qualify, just by being responsible.

I grew up poor, and worked my way through ten years of college and graduate school without borrowing a dime. All along the way I worked hard ar numerous part time jobs and lived within my means. I had a vehicle to drive, a place to live, food to eat, and clothes to wear. None of it was fancy or trendy, but it was paid for in cash.

Re #8:

1. Why should regulation of the payday lending industry, which more than frequently operates across state lines, be left to the states and local authorities? If the Feds can do an effective job regulating it, why shouldn't they? Workers who work in one state and live in another--quite common with semi-migrant laborers, especially in the East where state boundaries (e.g., New York / New Jersey / Connecticut) are closer--could get treated fairly in one state and screwed in another.

2. Was this "[growing] poor and work[ing] my way through ten years of college and graduate school without borrowing a dime" the norm or exceptional? If it was the norm, then there's no reason to take such misplaced pride in it. If it was exceptional, then it's unreasonable, not to say cruel, to expect it to be henceforth the norm for everybody else. (I, too, walked six miles barefoot through the snow to return a library book and did my arithmetic homework on the back of a shovel in front of a fire, but I try not to brag about it.)

Nuffsed,

I hear you...I imagine that you work hard and expect that of others; an admirable trait...

However, it has been my experience that the greatest levels of entitlement are just like our economic policies; trickle down.
Having worked in a major brokerage house for ten years during the most profitable period in our nations' history, I can safely say
that growing up poor only makes you more susceptible to the myth of the american dream...

It is when you get to higher levels of decision making and power when you actually witness entitlement from wealthy investors/directors... People with larger and larger incomes and networths are able to hide these processes, opt out of things they do not wish to do and blame their own entitlements away onto lower systems (usually with a immorality and a disdain saved for people whom they have spent years competing with)

Elizabeth Warren talks about this as "the myth of the immoral debtor"; sure people took on debt, but the de-regulation of the banking sector and privatization of global commerce trumps any one families' decision to go buy a $2,000 TV;

Oh btw, I ask you how many states mandate financial literacy in K-12? After all, we live a global world of capitalism, shouldn't we focus on education.... Nuffsed, the answer is 1 (Iowa);

Would enjoy hashing this out more; this is a polite challenge:)

If the payday loan industry is not a convincing candidate for regulation of usury, then maybe there are no such candidates. To some degree, the legitimate financial industry relies upon the government and the legal system in the collection of debts, so for example you have legal repossessions, foreclosures, findings of liability, bankruptcies, etc. The government, through commercial codes and many laws, is directly involved in the financial industry and its practices so it seems to me the government and the electorate has a right and a duty to draw lines and regulate what constitutes legal and therefore enforcable commerce. Should the sherrif and public courts, paid for by the people's taxes, be involved in helping unprincipled lenders enforce predatory contracts on ignorant, luckless or poor citizens? It seems to me that if the government is going to be involved in some ways in enforcing these debt contracts then they ought also to draw some line about what practices are acceptable in drawing the contracts to begin with. That's my view on it.

Bernard Schuster
Arrive2.net