We thought one detail worth sharing with anyone who will listen is that some title lenders will disclose a monthly interest rate instead of an annual one, even though legally they're required to publish the APR. For borrowers who don't know any better, a 25% monthly interest rate doesn't sound that bad compared to many mid- and low-end credit cards these days, until you multiply that by 12 and realize your APR would be three hundred frickin' percent.

"Why car title loans are a bad idea" [AOL Autos | CNN]
(Photo: Photog*Phillip)

Serve City director Kay Waldo said she felt the people at the shelter were victims of a crime.

"Absolutely," she said. "I think they take advantage of the people here. I really do."

Waldo claimed that some of the people at the shelter don't even know how to read.

"They're being asked to sign something without even being able to read it," she added. "It's a crime as far as I look at it."

"If something was said incorrectly, let the circulator's name be obtained and we will take swift action to investigate and remove that employee if necessary." Norris added.

The payday lending industry, of course, has plenty of experience taking advantage of people.

WCPN produced a segment on the dirty industry's dirty campaign:

We're won't feign surprise that payday lenders are resorting to underhanded tactics. Usury laws, election laws, ethics; it's all the same crock of unreasonable bullshit to them.

Ohio Payday Lenders Caught Lying in Ballot Initiative Signature Drive [Consumer Law & Policy Blog via Caveat Emptor]
Payday Loan Petitions Doubted [WCPN]
Ohio Payday Lending Law Change Battle Heats Up [WCPO]
PREVIOUSLY: Ohio Passes Legislation That Will Punch Payday Lending Industry In The Face
Ohio Senate Passes Strict Lending Legislation, Prepares To Punch Payday Lenders In The Face
Ohio Punches Payday Lending Industry In The Face, Breaks Its Nose, And Laughs
(AP Photo/Seth Perlman)

A provision in the Arkansas state constitution limits the allowable interest rates on loans and consumer credit transactions. According to Article 19, Section 13, the maximum allowable amount for general loans "shall not exceed five percent (5%) per annum above the Federal Reserve Discount Rate at the time of the contract." Any contracts that charge higher interest will be void as the interest. The consumer loan provision is even better: "All contracts for consumer loans and credit sales having a greater rate of interest than seventeen percent (17%) per annum shall be void as to principal and interest and the General Assembly shall prohibit the same by law." Payday lenders have apparently been operating under an industry-written "Arkansas Check-Cashers Act" that called payday loan interest rates "fees," exempting them from the usury provision and allowing lenders to charge interest rates "fees" of up to 300 percent. The Arkansas Supreme Court has issued several rulings holding parts of the law unconstitutional and labeling payday lending as "unconscionable and deceptive," and appears to have McDaniel's back. In response, the payday lending association in Arkansas spouted the typical "Hey, at least it's better than paying overdraft fees and pawning your wedding ring" line.

AG McDaniel Orders Payday Lenders to Cease Operations or Face Action [Arkansas Business]
Arkansas Constitutional Provision on Maximum Interest Rates [Arkansas Secretary of State]
(Photo: ninjapoodles)

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.

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.

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%.

There should be a lender's prison, perhaps.

(Thanks to Diana!)

"High-Interest Lenders Tap Elderly, Disabled" [Wall Street Journal]
(Photo: Getty)

The state's largest payday lender, Advance America, claims the bill would either force them to close shop or accept losses of $100,000 per storefront. They are "very concerned" for the future of the 200 employees statewide who make their living cheating hard-working consumers.

...others argued that payday loans are an option that consumers need; without them, they said, people could be driven to less-savory choices, may depend more on their towns' welfare departments or have to scrimp on necessities. Other options facing someone who's broke - such as bouncing a check - are much more costly than a title loan, they said.

Sen. Bob Clegg recounted times of struggle in the 1970s and 1980s when he had to turn to the "black market" to tide him over. "You can fail, or you can take another chance," said Clegg, a Hudson Republican. "My position, I took another chance."

He would be too embarrassed to go to a welfare office, he said, and would rather "stand tall, make my deal with them and then make my payments because that keeps me a man."

Payday loan limits passed [Concord Monitor]
PREVIOUSLY: Payday Lenders Can't Afford To Lend You Money At Only 36%
(Photo: taberandrew)

Here are a couple of screen grabs from Google Earth—you can download and view the maps yourself if you want to explore them.

The authors speculate that this may be the sad after-effect of a political deal-with-the-devil a couple of decades ago—after all, Christianity has historically been against usury:

Peterson, who also holds an appointment at the University of Florida, Fredric G. Levin College of Law, said he believes part of the explanation for their findings lies in politics. "When the Christian Right allied itself with conservative Wall Street business interests in the 1980s and early '90s, consumer protection law was placed to the side as an inconvenient sticking point. The laws allowing an astonishing number of triple-digit-interest-rate lenders throughout most of the Christian South and Mormon West are a legacy of that political alliance.

"U of U Professor Coauthors Study Mapping Correlation Between Christian Right, Payday Lenders" [S.J. Quinney College of Law - University of Utah]

RELATED
Interactive data maps [California State University Northridge]
"Usury Law and the Christian Right: Faith Based Political Power and the Geography of the American Payday Loan Regulation" [SSRN]

"It took Linda Medlock four years and $8,000 to pay off the $500 she borrowed from a payday lender to make her mortgage payment," says the Denver Post.

Boo, payday lending. Boooo.[Denver Post] (Photo:taberandrew)

A randomly selected pool of Latin America borrowers who were just below the normal level of credit worthiness were approved for a 200% 4-month installment loan. A control group was denied based on normal policies. Tracked over the next two years, the group with the high-interest loan made more money, went less hungry, had better credit scores, and were happier than their control group. They also had higher default rates.

"Rolling over payday loans repeatedly might cost you big bucks," Yale professors Dean Karlan and Jonathan Ziman write, "but it can turn out to be a good deal if you need the initial loan to fix your car, hold on to your job and avoid losing even bigger bucks in after-tax earnings." They argue that it's lack of access to available credit that does more harm than the high interest loans. They say that policy makers shouldn't try to stop high interest loans from happening, and instead there should be maybe better loan disclosure laws, or opt-out employee savings plan.

Here's the thing, though. They're obviously trying to draw an angle to the pressure and scrutiny the American payday loan industry has fallen under. But compared to the rates American payday loans charge, 200% is nothing. We're talking rates of 400%, 651.79% and 800%. There's also all sorts of fine print fees which can trip consumers up. That's a whole different hog to roast than a straight-up 200% installment loan. We bet the tweed jacketed fellows would have seen higher default rates and lower levels of prosperity, happiness, and well-being had they run their experiment using American payday loan rules.

Also, they select from just below the line borrowers. Well, payday loans are given not just to below the line borrowers, but all the way down to the gutter bottom of credit worthiness, to people who never ever will be able to pay off the loan in full.

So, the profs end their piece by saying more research is warranted. We agree - let's see a similar study using some American payday lending rules. They may have some difficulty designing he study, however. In most areas, payday loans are unregulated. It will be difficult, then, for the people running the study to decide which kind of usurious payday loan to use as a standard.

In Defense of Usury [WSJ] (Thanks to Chris!)
(Photo: ninjapoodles)

The bill was the focus of various lobbyist shenanigans, perhaps best encapsulated in the person of former mayor Marrion Barry, who, despite initially co-sponsoring the bill, today ended up casting the only vote against it. ""We are putting this industry out of business," he said, concerned about the bills effect on they payday loan cartels and their employees.

Um, yeah, wasn't that the whole point?

District of Columbia Passes Payday Lending Bill [CL&P Blog]

• Advance notice of interest rate increases
• End universal default clauses, the premise that they can raise your credit card interest rate if your credit score changes
• Prohibit credit cards being issued to minors without a parental signature

There's a slew of other items in there designed to curtail all the sneaky ways credit card companies rack up fees. We think this is a wonderful bill and hope it gets passed.

Use this online form to easily find your representative and tell them to support this important bill.

— BEN POPKEN

PREVIOUSLY: Meet The Credit Card Accountability Responsibility and Disclosure Act of 2007
(Photo: Lazy_Lightning)

Are Americans really just getting that much riskier as borrowers that lenders have to tighten the screws so much? — BEN POPKEN

Bank fees are more outrageous than ever [MSN Money]

New Mexico is one of the poorest states in the nation, and has virtually no laws regulating payday lenders, making it a perfect breeding ground for these usurious knaves.

The state is currently considering legislation that could potentially put the payday loan industry out of business in New Mexico... boo-hoo. — BEN POPKEN

'Payday Loans' Plague New Mexico's Working Poor [NPR]

PayDay Loan Centers: 22,000 (according to an estimate by the CFSA)
McDonalds: 30,000+
Starbucks: 8,836

The CFSA estimate is probably only the lower end, as probably not all of these places are dues paying members.

This isn't the "fringe economy", it is the economy. — BEN POPKEN

One of the summary bullets points says the course advises students on, "how to develop mutually beneficial partnerships with minority organizations."

We'd watch it, but at $125, the price is a little steep. Maybe we'll take out a payday loan to cover it. — BEN POPKEN

CFSA [Official Site]

The thought of washing down a Big Mac with a chai was too appealing to ignore, so we mashed up Richmond, Virginia's 1990-2000 Poverty Statistics by Census Tract along with Payday loan center locations. * Click to enlarge.

Richmond payday centers seem to roughly prefer to sit on the edges of areas with 15-30% poverty. People got to have a paycheck to give them an advance on, with 177% interest.

If a worker is short of cash and gets their full next paycheck advanced to them, how are they ever supposed to catch up?

With a windfall investment, or perhaps, another loan. — BEN POPKEN

* Combining 2000 poverty data with 2007 addresses is, admittedly, less than ideal, but it was the best we could get our hands on.

Banks charter new usurious subsidiaries in states with high or non-existent caps on interest rates. Those subsidiaries then issue the credit cards. And here's the catch: Even if you live in a state with a modicum of consumer protection, you're out of luck if your credit card issuer sets up shop in Rapid City or Provo. The laws of the bank's state, not yours, govern your rights.

So since the legislators in those states don't have the stones to stand up to the banks' lobbyists and their gift baskets of cash, everyone else in the country pays the price. Thanks so much.

For a good backgrounder on why credit cards can suck as much as they do, PBS's Frontline has a great overview of the history of plastic money. Thanks to reader Billifer who pointed us to Mental Floss's post, that riffed off Pennylicious, that was relying entirely on the PBS report we mentioned earlier. Jeez, what a mess.

First, cut up the cards. Adopting a "cash on the barrelhead," and "If I can't buy it, I don't need it" policy early in life will get you far. Maybe not behind the wheel of Ferrari but at least not under its wheel after throwing yourself in front to escape the vertiginous spiral of collection agencies.

Secondly, find a way to dig the seed of this debt wart out by the roots. Ask for parents to pay off debt with a zero interest loan. If they say no, get a student loan for the amount necessary. Either way, the interest will be cheaper. Ask around the student financial aid office. At our college, they gave a $2500 "laptop" loan very easily. There should at least be Stafford loans readily available.

These sound preferable to the CapitolOne "Smartswitch" program you were asking about as they deal with the essential problem (debt at high interest rates) instead of just passing your ankles around.

"...back in the '60s and '70s ... a lot of bankers objected to credit cards and said they were not going to give consumers the noose from which to hang themselves—that was immoral, that was unethical ... They understood that people would abuse credit if given too much of it, and the banker had to fill this role of regulator. That philosophy doesn't exist any more."

That's documentary filmmaker James Scurlock in a recent Newsweek interview about his film Maxed Out, which traveled around the country interviewing people who were victims of predatory lending practices, greed, and ignorance.

For many interviewees seemingly trapped by excessive usury, suicide sometimes seems the only option. Two debt-ridden ladies did exactly that...

Movie Site: MaxedOutMovie.com