Consumerist
This writer is quickly growing convinced that payday lenders are the modern version of indentured servitude, trapping consumers in cycles of debt that simply cannot be broken in their lifetimes. The Wall Street Journal published a story last week about payday lenders who make loans to the elderly and effectively take over their Social Security or disability payments, handing back whatever remains after they take their cut. Though it sounds like it should be illegal, payday loan companies are partnering with banks to pull this off.
The law bars the government from sending a recipient's benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.An analysis by geographer Steven Graves (one of the two researchers who discovered that payday lenders pop up disproportionately in areas with strong Christian conservative political power, which we discussed here) "shows many payday lenders are clustered around government-subsidized housing for seniors and the disabled."As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients' finances.
One former payday lender employee says he was tasked with recruiting the elderly to come in for loans:
Mr. Harrod was a manager of a Check 'n Go store across the street from Fort Lincoln Senior Citizen's Village, a subsidized-housing complex for the elderly and disabled in Washington, D.C. Mr. Harrod says he was encouraged by his supervisors to recruit the elderly, and did so by often eating his lunch on nearby benches to strike up conversations with the complex's residents. According to Mr. Graves's analysis, there are at least four payday lenders within a mile-and-a-half of Fort Lincoln.The article describes a worst-case scenario of this sort of practice, where an elderly man with schizophrenia and a $1,013 monthly income from Social Security took out a payday loan for $200 "after his car broke down and his 13-year-old terrier racked up a big vet bill."
Like many payday borrowers, Mr. Hummel realized he couldn't pay off the loan when it was due so he went to another "payday" lender. Lenders rarely ask about other loans and debt, and borrowers often take out multiple loans in an effort to avoid defaulting. By February, Mr. Hummel had eight loans from eight lenders, at effective annual interest rates that ranged from 180% to 406%.Another man who can't read and "believes he's 80 but isn't sure" had a clerk (we're not sure if the clerk was with a bank or the payday lender) help him set up the paperwork to transfer his Social Security payments directly from his account to Small Loans, which is owned by Money Tree, Inc. His debt quickly spiraled out of control until he was receiving as little as $180 a month from Small Loans. After his utilities were cut off, a county social worker transferred his Social Security payments to another bank and cut off Small Loans—at which point Small Loans sued him. (The case was thrown out when Small Loans failed to appear before the court on the date of the hearing.)
There should be a lender's prison, perhaps.
(Thanks to Diana!)
"High-Interest Lenders Tap Elderly, Disabled" [Wall Street Journal]
(Photo: Getty)
Comments
1) Find ways of making sure payday lenders don't get their greedy hands anywhere near senior citizens or even citizens of any other age
2) EDUCATE people on better solutions to money troubles. Part of the problem is that people get desperate, they don't think straight, and in many cases, they just don't KNOW that getting involved with these places is more trouble than it is worth.
@UpsetPanda: Maybe prohibit them from advertising on TV. They do it for cigarettes and other things. I'd rather the old people waste their money on Kinoki footpads and Jazzy scooters than being fleeced like this.
Remember kids, Buddy Christ hates usury!
Any bank that partners with a payday loan lender like this needs to be shut down.
Hell, I want names so I don't bank with them!
Hey,this is what the government does to my paycheck every two weeks!
The first thing that needs to be done is to set a maximum loan interest rate - even if it is 50% APR. I am against too much regulation of the free market, but any reasonable person can see that somebody agreeing to a loan with that high an interest rate does not know what they are doing and is being taken advantage of.
Like setting the minimum wage, it shouldn't necessarily about telling business what to pay people, or even setting it at a rate most people would think is reasonable - it is to stop ridiculous situations where corporations take advantage of people, either by paying them 10c an hour or by charging 400% loan interest.
@masonreloaded: Reminds me of an old MASH episode where Rizzo loans Winchester some money at 100% interest, so he "didn't have to do any math".
These poor people. So sad that they were taken advantage of like that.
Absolutely rediculous. I wish every state would make these type of "lending institutions" illegal.
That's it; I'm just going to check into Al'z House when I reach retirement age....
@theblackdog - I totally agree with you. I want to see a list of banks that partner up with these payday loan places. I will blacklist them all.
@theblackdog: Agreed...give us the names of the banks. Not only will I not do business with them, but I'd like to let my Congressperson know what they are doing.
Glad that those "voluntary best practice guidlines" that federal regulators suggested are being strictly followed by banks and lenders. Voluntary self-regulation wins again!
Preying on the elderly. Pure evil. There is a special place in hell for these people.
I wish usury laws weren't a complete joke.
this biggest b.s. of this all is, its our dollars that pay their ssi, and so therefore, we are paying the payday lenders with our tax dollars.
i don't see why they couldn't arrange to stop the direct deposit though. then have the check mailed directly to you again.
Not that I am for this plan but we have to admit two things:
1) the largest consumer group is the babyboomers and they are retiring. Its good business to establish a patronage with them.
2) A good number of elderly need some kind of money manager. If this is not just about interest loans, it may not be so evil.
@snoop-blog: Well, its not just your dollars, the recipient paid ssi their whiole career and continue to pay taxes on income. That's indirectly part of the pie.
I long the times when this was illegal and people called these lenders names like "The Mob" and "Mafia".
I work for a non-profit agency that helps to keep people off of welfare. We spend about $220,000 a year to pay day lenders to get our clients out of debt. Once they are out, we offer counseling to keep them from going back. You would be amazed how often I have to tell people that pay day loans are a ripoff.
Not sure how the bank is making money on these accounts. Sure the check gets deposited, but the payday lender is taking the money right back out and the senior citizen is withdrawing the rest. I guess there is some float time on the money, but it also costs the bank money to have an account open. Probably some kick backs going on, which would be illegal.
Also, if the bank sees a lot of senior citizen accounts with the payday lender on the account, they know something is wrong.
Somebody explain to me how a contract made with a schizophrenic and a contract made with someone too illiterate to be able to read it could possibly be enforceable?
how dare someone provide a service for a demand. free market for the lose, and dumb consumers for the win
@Squeezer99: if you're going to be that Darwinian, I hope you don't wear glasses, have never relied on modern medicine to recover from an illness, taught yourself how to read and write, grow all of your own food, and, I dunno, are reading this site from a separate Internet you developed yourself that you're connecting to through a computer you built from scratch. It's called "society." I know it stokes your vanity to think you're a self-made person who's nobody's fool, but like it or not you're part of a larger network of people who rely on each other to thrive.
P.S. Don't hate on the elderly or the mentally ill. It's really uncool.
@Squeezer99: There's a huge difference between: "here's your loan, with such and such interest rate, and payment plan outlined here" -vs.- "Just have your paychecks sent to me, and I'll work out the details."
The latter is actually ANTI free-market, because it does NOT allow the consumer to be bid upon for the lending service. It locks his funds away, and prevents migrating to a different service. It's just exploitation, pure and simple.
Way to grasp none of the operative details of the above situation.
Go rent the movie "Maxed Out," about credit card debt. Apparently, some of the largest banks int eh United States actually own these payday loan places -- the ones that look like "mom and pop" busiensses.
Preach it, Chris Walters!!!
@Squeezer99: I would agree with you if we were talking about healthy, middle aged people making dumb decisions.
Eating your lunch on a park bench to strike up conversations with the schizo elderly so you can steal their paycheck is reprehensible. End of story. If you know they're not fit to handle their own finances and you take advantage of them, you deserve to be mop-raped.
@ludwigk:
what is anti-free market is wanting the government to ban payday lenders. they are just providing a service that people demand. if you really want to get rid of payday lenders, educate people on how bad they are.
@m4ximusprim3:
i didn't say payday lenders weren't bad. they are bad. but i don't want the government telling me what business i can and can't run.
@Squeezer99: A thread about corporations exploiting the mentally ill is really, really not the place to be making libertarian arguments.
No one is forcing the elderly to take out payday loans. Yes, perhaps they have been directly marketed to, but the guy didn't put them in the financial situation that required the loan. If the Payday service had NOT been there, how would the guy have been able to get his car fixed, etc.? Further, god forbid the Payday loan service want to actually get their money. I'm not necessarily advocating the banks being involved, but if the customer signed off on it, that's their own doing. Social Security or not, the person made a commitment, and it should be honored. I realize that public policy favors SS funds not being garnishable, etc., but when the customer signs it away, it's entirely different. The lender didn't steal it from them, the customer gave them direct access to it. I have little sympathy for peoples stupidity. Even the elderly still possess common sense. Moreover, the fact the gentlemen was a schizophrenic is basically irrelevant unless the lender knew at the time the contact was signed that he was mentally ill. With regard to the gentlemen who couldn't read, the lender has no duty to make sure he understands the contact. If he can't read it, he should have known not to sign it. I realize the elderly are more susceptaible to scams, but this isn't one of them. They got what they bargained for. This isn't some guy "selling" them something and no delivering, or scamming "Donations" out of them. They entered into a financial transactions, being made (at least constrcuctively) aware of all of the terms. I don't see any problem with the lender expecting them to hold up their end of the bargain.
@RulesLawyer: It shouldn't be - besides, isn't it illegal to enter into contracts with someone that is mentally incompetent or has no understanding of what they're doing?
@NotATool: Agreed - maybe the 9th Circle of Hell?
@scarletvirtue: Not illegal, unless there's an attempt to defraud. But the contract's not enforceable either, which means that if it were to go to court, the judge would decide what the fair terms should be.
Given this some thought and I would like to see payday loans made totally non recourse.That would force the lenders to determine whether the borrower could actually repay.One of the problems with these usurious loans now is that the lenders have a perverse incentive to get you in deeper. The article says that lenders don't care how over your head you are (and the current bankruptcy laws make the court system the debt collector for the lender).Also,a cap on fees and interest is going to happen someday because the system has become so abusive.
@Squeezer99: So the government should let you open a soilent green factory? I don't think so.
Why is it if you were doing this on the street you would be called a loan shark, a grifter or a scam artist and probably end up in jail. But if you set up in a strip mall with a nice light up sign and some desks this is ok?
Yea. I want the names of the banks that cooperated and the names of the payday loan places that are really owned by banks. The biggest excuse for the existence of payday loan places is that banks won't take the risks of loaning to these people any longer or in such small amounts.
@RulesLawyer: I knew there was something relating to the contract possibly being considered null and void in those circumstances - just couldn't think of the exact way to articulate it!
So, yeah, what RulesLawyer said!
My first tip gets posted! Where's my check Denton?
Pushing those contracts to the elderly and the ill may not be good publicity or even enforceable in court.
But, that isn't a concern for the payday lenders... why would it ever be a concern if they know that those same people that they're stripping to the bones won't do a thing about it? Chances are, if the elderly are desperate enough to do things like that, their good for nothing families (if they have one) probably don't care enough anyway. If not, their family is in equal sh*t as they are. Truly a sad state of affairs.
There's a special room in hell reserved for those arsehats of a lender. Spend your money quickly because it'll be useless when your lives come to an end. And don't think doing the last rite bs will give you permanent immunity.
And yes, I want names. My voice and pen is always ready to hire and fire banks at will.
Busy here so sorry POV if this is already on the table............but.................................HOW IS THIS NOT A CONSPIRACY???
It's amazing how someone can get to a point where they're convinced this is what they need to do within the 'confines' of the law to make a living. And then when someone manages to get their check out of their hands (after a profit of hundreds and hundreds from that citizen) that it's right to take them to court for having the audacity to take control of their govt checks. Thank goodness they didn't have that dubious contract for court..my feeling is that they knew they added something illegal to the contract that was signed that wouldn't pass in court.
I'm not sure why people seem to believe that contracts are so easily "cancelled" or held null and void. Such a remedy is very extreme, and courts are typically reluctant to do so in the absence of evidence of fraud. In the case of mental infirmity, the courts will apply one of two tests (depending on Jurisdiction). The mentally ill party must show that they either they did not know the nature of the contract they were entering (does not require any knowledge on the other parties part), or that they were unable to act in a reasonable manner regarding the transaction, and they other party knew or should have known. Those are both fairly high burdens, and I don't think a functioning schizophrenic would fit into either category. Further, being old isn't a defense either. Unless there was duress or fraud, being old and confused isn't a defense to enforcement.