Civil Rights Groups Defending Predatory Lenders: Priceless
Washington Dispatch: What does Martin Luther King Jr. have to do with payday lenders? Nada, but that hasn't stopped African American leaders from invoking his name as they shill for the credit industry.
August 1, 2008
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At the end of June, as the subprime mortgage crisis was driving the economy into a tailspin, Charles Steele Jr., the president of the Southern Christian Leadership Conference (SCLC), took to the op-ed page of the Washington Post to decry the devastating effect the meltdown was having on minority homeowners. But rather than support currently pending measures to better regulate the credit markets, the leader of one of the nation's oldest civil rights groups instead attacked them. Steele was particularly upset about a Federal Reserve proposal that would crack down on subprime credit cards—high-interest cards marketed to people with bad credit.
Steele rose to the card issuers' defense, invoking his group's founder, Martin Luther King Jr., and claiming that any move to regulate the cards would deny minorities access to much-needed credit. (In July, after another op-ed piece on a similar topic appeared under Steele's byline in a a handful of papers, he claimed he didn't write it or authorize its release; according to Steele's lawyer, a Washington public relations and lobbying firm was behind the commentary.) The argument was an odd one coming from a civil rights group. Most consumer groups believe that the subprime industry is largely predatory, and rife with abuses that disproportionately affect minorities. But Steele's op-ed makes a lot more sense when you consider a detail the Post at first left out: In August 2007, the SCLC formed a partnership with CompuCredit, a subprime credit card issuer and payday lending company. (The Post later updated its story to reflect this.) The deal included plans for an affinity card that would put the famous civil rights group's name on CompuCredit Visa cards and joint "economic empowerment" workshops around the country to help educate minorities about credit. When Steele announced the deal last year, he said, "Consistent with SCLC's historic commitment to civil rights and economic justice, this partnership represents a critical part of our campaign for economic empowerment."
While the civil rights group has been lauding its corporate partner, the federal government has taken a slightly different view of CompuCredit's contributions to economic empowerment. Last month, the Federal Trade Commission sued the company for unfair and deceptive trade practices, as well as violating the Fair Debt Collection Practices Act. The FTC alleged that CompuCredit bilked consumers out of at least $217 million through a scheme in which consumers paid so much in fees that they rarely had any credit available on the company's Visa cards. The CompuCredit cards are better known as "fee harvesting" cards—that is, credit cards sold to people in dire financial straits that have high interest rates, low credit balances, and lots and lots of fees for people who generally can't afford them. The practice is enormously lucrative. The National Consumer Law Center reports that in 2006, CompuCredit made $400 million in fees on such cards, simultaneously saddling consumers with more than $1 billion in debt.
The FTC also alleged that CompuCredit was working in tandem with its debt-collection arm, Jefferson Capital, in a complex scheme that used the credit cards as a way of duping consumers into paying off old debts that had been discharged by other lenders. Far from lifting consumers upward, CompuCredit was leaving its customers mired in debt, from which they would have a tough time escaping.
The fraud allegations against the company don't seem to have soured the storied civil rights group's enthusiasm for it. After the FTC filed its suit in June, Steele defended the company, saying that CompuCredit "has been a true friend to the SCLC and to the communities and individuals it serves, and in our opinion is one of the few financial services companies that is working diligently to increase access to credit in underserved communities." Steele did not return a call for comment. Of CompuCredit's relationship with the SCLC, Tom Donahue, the company's director of corporate communications, says, "As a company that provides credit products and financial services to financially underserved consumers, CompuCredit has an abiding interest in working with individuals and third-party organizations that share our commitment to financial education and to helping credit-challenged consumers bridge their way to a prime credit score and the financial mainstream."
William Jelani Cobb, a history professor at Atlanta's Spelman College who has followed the fortunes of the civil rights infrastructure, says that he was unaware of the SCLC's relationship with CompuCredit, but is not surprised by it. "It's an indictment of how far SCLC has gone from its historic roots. These folks owe their existence to a moral claim to helping other black folks. This is an outright betrayal of that."
SCLC is not the only civil rights group or black advocacy organization that has linked arms with CompuCredit and other companies that peddle high-interest credit and predatory loans to poor minority communities. The fringe finance industry has intentionally tried to cultivate relationships with minority organizations as part of its lobbying campaign against stricter regulation, both at the state and federal level. "Just like they target minority groups to sell their products, they target minority groups to make their products look legitimate," says critic Keith Corbett, executive vice president of the Center for Responsible Lending (CRL).
Three years ago, Al Sharpton went so far as to appear in TV commercials for LoanMax, a company that specializes in auto-title loans, whose 300 percent interest rates consumer advocates consider deeply predatory. CompuCredit has participated in Jesse Jackson's Rainbow/PUSH Coalition's career fairs and economic summits. Local affiliates of the National Urban League, one of the nation's oldest civil rights groups, have worked with the payday lending industry trade group, the Consumer Financial Services Association (CFSA), to conduct financial literacy seminars. Denise Harrod, CompuCredit's vice president, has served on business committees of the National Conference of Black Mayors and the National Black Caucus of State Legislators, both of which have received money from the payday lending industry.
Payday lenders were popular honorees this year among civil rights groups celebrating the birthday of Martin Luther King Jr. The president of CFSA, the payday lending industry lobby group, chaired the Congress of Racial Equality's (CORE) Martin Luther King Jr. awards dinner in January. To honor the King holiday this year, SCLC gave its presidential award to CompuCredit's Harrod for her "leadership in the struggle for economic justice through the political process."
The rationale behind the industry's cultivation of African American supporters is fairly simple. Payday lenders and other corporations that specialize in predatory lending have only one really useful argument in defending their business practices, and it goes like this: They provide a public service by catering to the "unbanked" and other financially underserved communities—i.e., those discriminated against by white banks that won't make loans to African Americans. Without payday or other subprime lenders, they argue, many poor minorities would have no way of buying homes or keeping their lights on in an emergency.
It's a seductive argument, in part because it's based on a kernel of truth. Black Americans in particular have indeed been shut out of mainstream banks for decades. But as Corbett notes, loans with 300 percent interest rates are hardly a desirable alternative. Nonetheless, the subprime and payday loan industries have been somewhat successful in fending off stricter regulation, in large part because they have recruited African Americans and civil rights groups to make the argument for them.
One of the most active groups on this front has been CORE, a group founded by James Farmer and others in 1942, but which has long been more conservative than groups like SCLC. CORE has long been happy to take money from just about any corporate donor. Not long ago Mother Jones chronicled; its role in helping Exxon fight global warming regulations. But CORE has also been heavily involved in defending payday lending, a practice better known as "legal loan sharking" because of the enormous interest rates charged for the short-term loans.
According to CRL, the average payday loan borrower typically pays about $800 in interest for a $325 loan, and numerous studies have shown that payday lenders are disproportionately clustered in minority neighborhoods. Payday lenders are also notoriously ruthless debt collectors. Just one example: A New Mexico woman named Laura Cordova sued a payday lender in September 2006 after its collections workers started harassing her family, friends, and ultimately her boss and other people at her company, not just with phone calls but with visits to the office. Cordova was eventually fired as a result.
Yet CORE's national spokesman, Niger Innis, testified last year against a bill that would ban payday lending in Washington State, saying, "Payday lenders offer a choice that is not widely provided by traditional lenders anymore. Consequently, we think that payday lenders provide a choice that members of our communities should be allowed to make." The bill failed. In Georgia last year, when the payday lending industry tried to roll back a relatively new ban on payday lending there, CORE lobbied heavily to overturn it, along with the Georgia Legislative Black Caucus, whose chairman, Rep. Al Williams, told the Associated Press, "No one has explained to me how a person making $6 an hour and is about to get his lights turned off can go and get a loan."
By all means inform consumers in large, simple print, but do we need big brother to tell us how we can spend our own money?? NO!! I'm an adult, and I claim the right to make my own financial choices.
Maybe some folks need to focus on the REASONS so many people are struggling financially, instead of trying to further limit taxpayer choices.
Even George McGovern opposes the authoritarian price controls, advocated by so-called consumer activists, that would eliminate small loans from the marketplace for millions of Americans by requiring that the loans be offered for a fraction of the cost of issuing them. See http://online.wsj.com/article/SB120485275086518279.html
The opponents of payday lending, in converting the fees for a two-week payday loan into an annual percentage rate and focusing on that, are trying to make it sound as if payday lenders are charging 10 times more for the service than they could be, but that is simply not true. Small-dollar short-term loans (the only type of loan which many people can qualify for) must have a high APR, to be at all profitable, due to the high ratio of the cost of making the loan to the amount being lent. But the APR tells you nothing about how profitable the loan is for the lender or how wise the transaction is for the consumer.
People use payday loans to survive in emergencies or to save money on bank overdraft and other fees which, when calculated as an APR, can be 20 times more expensive. See http://www.cfsa.net/OverdraftProtection.html
Customer satisfaction surveys show that the overwhelming majority of payday loan borrowers are satisfied with their experience and consider the loans to be a useful financial service. See http://www.cfsa.net/customer_demand.html
Any service can be viewed as predatory if you're just looking for a target to criticize. You could say that doctors prey on the sick, accountants prey on those dumbfounded by the tax code, and the entertainment industry preys on the lonely and the bored. Just think how people are tempted to pay huge prices, which they may not be able to afford, to see Billy Joel and Bruce Springsteen in concert - so let's place a cap on the amount Joel and Springsteen can charge for their performances to, say, $100 an hour. Do I need to go on?
And by the way, Ms. Mencimer, were you paid by Mother Jones to write this article?
Better to borrow money, buy now, and at least have the use of the goods for a period of time. The banks and the federal reserve have created this mess in which long term planning for consumption is a guaranteed losing proposition. If you get it now and later go bankrupt, at least you had it for a short time. The alternative - the one my Depression era patents would have preferred - of saving for later consumption has been placed beyond the reach of most working and lower middle class families.
The banks, of course, as bankers always do if allowed to, are taking full advantage of this by gouging on interest rates and fees.
It will take a structural change in the economy, directed by the political leaders not bought by the bankers, to change this. But those are exactly the same political leaders who revised the bankruptcy code to please the bankers who are screwing the public.
The graphic is apparently affiliated with the "Circuit City" banner ad placed above the article. Nice to know who to blame.
All very well to have advertising; it is a necessary evil to support Mother Jones' good work. But they need to stay in the box! I don't need distracting and intrusive graphics that actually cover up the text of the articles.
It is the consumer's responsibility to check out the lender before signing up. Of course, Sharpton and Jackson act as shills for these companies - they're little more than common hucksters with little if any care for themselves.
Of course they'd evoke the name of Martin Luther King to peddle their wares; they have such little regard for the communities they purport to defend that they think this to be an effective way of selling their product. And apparently it is.
Instead of pandering stories about the victimized poor, why not do an in-depth report on Sharpton and Jackson, exposing them as the frauds we all know them to be?
I did nothing to screw up the banks and I want my money back. Many other WOMEN get run off jobs and THAT SCREWS UP THEIR CREDIT.Big companies can afford to write stuff off I can not.Who is going to set this mess straight???????
Such an effort would have to include a LOT of member education and some real strict limits on behavior- e.g., "Look, we're all brothers and sisters, and if you don't pay your loans back, you're ripping us off.
The leaders of the AA community are mostly black pawns recognized by the white(?) press. Black people for the most part, are not being led by these people. When you see them "leading" people, their participation is paid for in order to attractt media to call attention to problems being faced in their communities.
When it comes to laws and bills being passed, they are powerless. So to keep cash coming in to them, they make assinine supportive statements. It is a good game. When the bill passes, they can shrug their shoulders and say, "oh well we tried."
The important thing to remember is that white leaders play the same games with their people and everyone else. They play it even better. Look around then wake up aND SMELL THE COFFEE. The rich are getting richer while they pit the middle and lower socio economic classes against each other to protect their positions. The silly whites in these groups actually identify with upper class, rich whites who don't give a rat's behind about them. Middle and lower class people need to get together to take back their government and make this country of the PEOPLE, by the PEOPLE and for the PEOPLE instead of, of the Congress, by the Congress and for the Congress and their rich contacts who buy them. Forget all of the smokescreens thrown out there to evade the real issues while we continue to loose in every arena of importance.
Gas prices soar and with it the cost of everything else; the nutrition of our food is destroyed, and our work force is decimated. Just think of the number of jobs that will disappear when the effect of high gas prices hits the travel industry. Hotels, restaurants, airlines will all have to cut back. How will our people survive when welfare is only for the the wealthy because they told us how bad it is to provide welfare for the poor. What a laugh. They have the people against the people while the people support subsidies and tax breaks for big business, big pharma, big oil and everyone else who has money. Who cares what Sharpton and SCLC are doing? What your government is doing is far more damaging. Changes here are what matters.
thing is, APR is calculated over the course of a YEAR (ergo the "annual" part of those initials). what payday lenders charge, that is a ONE-TIME fee that is stretched out over NO GREATER THAN about thirty DAYS, TOPS! for instance...charging $30 for a $200 loan.
and the benefits? oh, let's start with the ability to MISS OUT on having to use overdraft "protection" from one's bank, especially since it is POLICY for banks to deposit the largest items FIRST in order to capitalize on MANY, MULTIPLE overdraft protection fees, often as high as $25 or even $30!!!
now...which is more predatory??? no, let me rephrase that, because i do NOT believe that giving ppl an option to pay a ONE-TIME fee on a loan to avoid MUCH MUCH BIGGER problems because of overdraft fees and eventually, returned item charges as well.
there is NO WAY we can say that payday loans are even REMOTELY as foul as banks are...ESPECIALLY with the false or misleading advertising going on with these fees. after all, it's ONLY the payday lenders who are forced to post APR. if banks had to do that, we'd be seeing APRs like 1500%! after all, it COULD be considered like a ONE-DAY LOAN, right? that's what it's supposed to be...
i am the director of marketing for a collection agency...we have done PLENTY of work for BOTH SIDES (banks/credit cards, and payday loans). i can actually be a neutral observer in this case...and in my objective opinion the public has been GROSSLY misled by so-called consumer advocates, who have fallen in lock-step with the bank lobby, who is hard at work trying to CRUSH the payday lending industry, the ONLY viable COMPETITION to regular "banking" for middle and lower economic strata. they are spouting, word-for-word, the exact, hateful, race-baiting TRIPE that the bankers are TELLING THEM are the true motives behind payday lending.
okay, so we all know that MAKING MONEY is the basis for conducting business of ANY KIND. can we just stipulate to that and move on?
the tricky thing for payday lenders is this: when you choose to provide a loan for individuals lacking decent credit, your RISK is MUCH higher...as is your incidence of default. let's ask ourselves, what is the universal weight used to help even that probability out? that's right...HIGHER RATES or FEES for the use of that money. let's not pretend that banks do not use the same model. hell, they STARTED IT!
so payday lenders charge higher (ONE-TIME!!!!) FEES for their loans. and yes, IF a person were to take out a payday loan each month, it WOULD resemble interest in the classic sense...but isn't that HIS or HER choice to make? whether they should pay THAT fee or pay OTHER, more exhorbitant fees? well, the banks, the bank lobby, so-called consumer advocates (how can they call themselves advocates if they're in favor of RESTRICTING access to financial services for the "under classes" of america???), and apparently even the vaunted mother jones all would like us to ignore those fees, which far surpass anything the payday loan industry is charging. they would like us to ignore the evidence of our own eyes and brains that payday loans provide an OPTION to being more or less FORCED to accept the wretched terms of high-interest, high FEE credit cards (for lower credit scores) and overdraft protection from the banks who will FIGHT, SCRATCH AND CLAW to keep as much of your money as they can, an effort that includes but is not limited to intentionally forcing that larger check through FIRST, even if several SMALLER checks were presented first...because the overdraft fees on three, four, or five SMALL items far exceeds the fee for one LARGE item...and in doing so these banks KNOW that they are beginning a cycle that extends to every payday, as consumers (for whom the advocates are still advocating for, right? except we don't hear their voices on these issues. HYPOCRITES!) often lose the first hundred, two hundred, even three HUNDRED DOLLARS of their checks upon deposit, in large part due to this abhorrent practice.
where are my advocates again?
i want to know what's so wrong with me going to a payday lender and paying $45 on top of that $300 loan that allows me to AVOID as much as 2 or 3 HUNDRED dollars in fees coming off the top of my check in two weeks, all because i THOUGHT i had bounced ONE check for two hundred dollars instead of SEVERAL checks between 20 and 50 dollars...and got KILLED with fees on EACH ITEM. seems to me like i ought to have the RIGHT to choose something different, as long as somebody out there is WILLING to provide that something different.
enter payday lenders. not saying they're my white knights, by any stretch of the imagination. just saying...it's a better option by far. even IF they're forced to post their ONE-TIME FEES as APR...which makes it FICTION, by the way. totally MISLEADING advertising...but it's the government...at the behest of the bank lobby YET AGAIN...who forces this practice upon them.
thing is, any responsible payday loan borrower already knows this, and they STILL choose PDL over the fictional "protection" banks provide against overdrafts.
as for the racial element to this argument...it's a smokescreen. yes, there may be a large percentage of blacks and other minorities taking these loans out...but that simply demonstrates the fiscal UNBALANCE of our SOCIETY in general. there is MORE NEED in these communities, therefore you PLACE yourself IN the communities with the MOST NEED. not saying they don't open up in "middle class" neighborhoods...they DO. in fact, a thorough study was conducted, and the mean income of PDL borrowers was FIRMLY in the MIDDLE of the MIDDLE CLASS incomes. nobody is being victimized, although we all understand that tough times are tough times, and when that happens, no amount of sympathy is going to forestall the progress of destruction if that's just meant to happen. payday lenders understand one important fact: when the tough times REALLY take hold, they are the LAST IN LINE to get paid. again, this is why they MUST charge what they do in order to make money. it is NOT charity, even though payday lenders, maybe as a way to assuage some guilt or maybe not, tend to do a lot of charity work.
and anybody criticizing the motives does not understand the crucial truth to ANY charity: ALL charities rely on GUILT to produce the required funding. ALL of them. so...who cares, just because they're payday lenders.
and so...do i get to be amused and say that all the lip service the bank lobby and their lapdog consumer advocates are paying to look out for the helpless, hapless consumers who just don't know any better than to allow payday lenders to hold the gun to their heads and FORCE them to take the loans out...is that not priceless also?
I agree with Reverend Sharpton on this. As an African-American man in the south, I am tired of laws which purport to "help the poor", but at the same time make sure we stay poor. This is exactly what the CRL and many other "consumer groups" want to do.
OK, all whining aside...the payday loan industry is vilified for a very good reason (and it AINT what you think it is): they offer a product that is NEEDED...an alternative to just EATING massive repeated fees of $15-$30 PER ITEM covered by overdraft "PROTECTION." it's crap, and if they were ever willing to turn the microscope on THEMSELVES and require THEM to post APRs for overdraft charges, payday loans would look FREE by comparison.
guys, remember, banks all have POLICY that dictates that when an account is close to going into overdraft, they force the LARGEST ITEM(s) FIRST, so that they can apply those charges to NUMEROUS small items...so if there's $300 in an account and a batch of 6 checks comed thru at bill-time, they force the biggest one first, no matter if it was PRESENTED last or not. let's say it's $250, and then the other checks are for trash and water and gas, etc., in the amount of $15, $25, $30, $40, and maybe cable at about $55. NOW...apply the AVERAGE overdraft "protection" fee of $25 to EACH item that bounced (let's say the $55 check was put thru next because it's the next largest...that policy again, even though ANY of the OTHER checks would have been covered had they done the decent thing and put any of THEM thru first)...you have FIVE items, ONE HUNDRED and twenty-five dollars in charges on only $165 worth of checks. AND...had the bank put the smaller checks thru first, our poor consumer would have only had ONE SINGLE overdraft fee on that $250 check or debit. NOW...considering that overdraft fees are assessed in ONE, maybe TWO business days...figure out the APR on THAT and get back to me on what is worse--the $20 ONE-TIME loan fee for a loan of $125 that would have allowed him/her to cover ALL OF THOSE CHECKS.
do not tell me that banks, the source of nearly ALL the bad press about payday loans (bank LOBBY, to be more accurate, who fired up consumer advocates to start this whole anti-PDL PR campaign.)
you gonna tell me that ppl who ordinarily wouldn't qualify for a small loan (nor would the banks want to give such small loans) from a bank--those ppl shouldn't have a place to go, a WAY TO AVOID THOSE FREAKING CRIPPLING FEES.
AND...those fees charged by PDL lenders...they are NOT interest...not according to ANY definition of the word. and if there were not such a high rate of default, they could afford to charge less...but it's just like any store who raises prices to cover high incidence of shoplifting...they have to be able to remain in the black. no different here, and just remind yourselves that these fees from PDL chains are SO MUCH LOWER than overdraft protection charges by banks.
that post about how CFSA was opposing an "INTEREST CAP" of 28% on payday loans??? it ISN'T INTEREST, it's a FLAT FEE. it's actually a proposed CAP on FEES...and no payday lender could survive on that, no way. when your rate of default is anywhere from 5%-12% depending on geography, you can't offer too much of a bargain, y'know? it's a question of...are we elitist enough to think that WE should be entrusted with decisionmaking power over a large portion of our population who make less money (slightly less income than the $50K average per annum) than some of us...and of course we assume (THEY...i don't) that we're smarter than they are and therefore know what's best for them...in this case ppl think that overdraft protection is best for them, rather than the MUCH CHEAPER payday loan product. weird...for a population SO CONCERNED with equal rights not just under the LAW, we sure to take elitist approaches to issues affecting the populations in question, don't we?
it's just not true, man. do the research, or at least read my post above and challenge yourself to check out my claims.
sure, in a perfect world it COULD be as simple as denying credit to those who live check to check. problem, though. what do you propose to do with those who are about to have power shut off in mid-summer here in my hometown of palm springs, CA when it's 120 degrees with 70% humidity and you need air conditioning to STAY ALIVE???? we have seniors out here on fixed incomes, and if it's towards the end of the month and the cutoff date has arrived and they have NO WAY of getting money...are YOU going to give them money? are ANY of these ppl posting on this thread?
well, we may not, but payday lenders DO IT. and if you don't want to plow through my long post, read the one from joe schultz on august 4th, it says many of the same things (makes the VALID comparison between overdraft protection vs. payday loans...the number one reason we HAVE TO allow the option of payday loans, and with fees that allow the lenders to stay in business and make some money. you think they make as much as banks or credit card companies?
tell you what...my WIFE just paid off ALL her credit cards...know what one of them did? REDUCED her limit. they didn't say as much (used a FALSE rationale, saying she had multiple accts. near limits...when ALL her cards are at zero balance), but you want to know WHY they did it? because if they keep ppl CLOSER to their limits they can charge those sneaky finance charges and overlimit fees. there is no other reason that makes any sense.
anyhow...i challenge you and everybody here who has just fallen in lockstep to supposed consumer advocates to research their claims...the simplistic and repetitive references to FICTIONAL interest rates when referring to ONE-TIME fees (one loan, one fee that never increases, and few IF ANY rollovers allowed, per CFSA lobbying efforts).
and anna: "Again with the smoke and mirrors, Anna! All payday lenders and their proponents can do is try to change the subject to "bank fees are too high"! I'm with you, sister! Bank fees ARE too high! And 391% for a payday loan is too high! Reasonable limits on interest rates help to prevent payday loan consumers from getting trapped in a cycle of never ending debt. It'd be one thing if everyone used it only once and moved on. However, the average borrower in the great state of Ohio takes out nearly 13 of these exploitative loans per year. Usury is not freedom! "--
--look, i respect your perspective, but it ain't a diversion...it's the VERY REASON we NEED payday loans (or SOME alternative for ppl without ready access to limitless cash). come up with a good alternative and i'll jump onboard. but in the meantime...these guys HAVE to charge interest rates that keep THEM in the black, or they lose their shirts b/c of high rates of default.
and it doesn't matter if they take out 50 such loans each year...it STILL beats paying overdraft fees as many as 6, 8, 10 times PER MONTH. costs MUCH more to pay those than to pay the FEE for one payday loan each month. even though i REALLY question that statistic...the validity...know why? because it's really close to the MAXIMUM allowed by law...are we to assume that the entire STATE AVERAGES a number of loans that approaches the very LIMIT that the law allows? i doubt it highly. i always apply my bullpuckey filter to every statistic i see...and if i had seen a number closer to about 7 or even 8 payday loans taken per year i'd be likely to believe it. PDL lenders rely on return business, that's why they pour so much BACK into their communities...guilty consciences or otherwise (ppl who make money ALWAYS feel guilty if they have any conscience). so Anna...do we have access to the research that DEMONSTRATES that 13 per annum AVERAGE??
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