Civil Rights Groups Defending Predatory Lenders: Priceless
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Payday lenders and other fringe finance companies are not natural political allies with black political groups. CompuCredit, for instance, was founded by Frank and David Hanna, Georgia businessmen who made a name for themselves in the mid-1990s by turning the nonprofit Blue Cross/Blue Shield of Georgia into a for-profit company and then allegedly plundering its assets. The Hannas have donated heavily to Republican causes, providing some of the largest contributions to former Christian Coalition head Ralph Reed in his failed bid for Georgia's lieutenant governorship. Frank Hanna is affiliated with a group of American Catholics who had lobbied bishops to refuse communion to John Kerry during the 2004 presidential campaign.
Not surprisingly, CompuCredit faced significant obstacles when it came to winning over African American political leaders who tend to be Democrats. But money has helped, as has the strategic employment of African American lobbyists. For instance, CFSA's lobbyist during the Georgia debate last year was Willie Green, a former wide receiver for the Denver Broncos and Carolina Panthers who owns a handful of payday lending outfits. Before the legislature voted on the bill, Green gave an $80,000 loan to Rep. Ron Sailor, an African American legislator who didn't pay it back. Sailor crossed party lines and voted in favor of the Republican bill. Sailor pleaded guilty earlier this year for unrelated money-laundering charges. (The bill failed to pass.)
In 2006, CompuCredit hired J.C. Watts Companies, a firm run by the former Oklahoma congressman, who was the only black Republican in the US House of Representatives when he retired in 2002. CompuCredit paid Watts' firm $60,000 to lobby on its behalf when Congress was considering legislation to cap interest rates on payday loans to members of the military. (The bill passed.) Watts also gave the company entry to the nation's network of historically black colleges and universities, which has been a prime target of the payday loan industry. (CFSA now offers paid internships to students at those schools to work in the corporate offices of big payday lending companies.)
In 2004, Watts and CompuCredit launched a consumer financial literacy initiative through four historically black colleges and universities. The partnership involved CompuCredit's funding market research and the development of a financial literacy curriculum for students. (A call to Watts' company went unreturned.) The notion of payday lenders offering classes on financial literacy is akin to Altria sponsoring anti-smoking classes. After all, as the Center for Responsible Lending's Corbett observes with a laugh, "If they improve financial literacy, black folks would never go to their stores." Yet such programs have been a staple of the industry's PR efforts and they've proliferated with the help of black advocacy groups. ("At this time, CompuCredit is not engaged in any activities directly related to historically black colleges and universities," says CompuCredit's Donahue. "We have never located any services—kiosk, portal, or other presence—on any college campus, and there are no plans to do so.")
In June 2007, when many states were considering bans on payday lending, CFSA launched the "Youth Learn & Save" program, which provides high school and college kids with financial literacy rallies and summits. The programs use a modified curriculum created by the Federal Deposit Insurance Corporation (FDIC) and even feature a workbook that includes a description of a predatory payday loan. Presumably the instructors—payday loan company employees and owners themselves—can offer a unique perspective on that particular subject. A brochure for one seminar held in January this year at a majority black high school in Texas says, "Sharing Dr. King's Dream through Financial Literacy." In June, the National Baptist Congress of Christian Education, the largest and oldest black religious convention in the country, hosted one of the events.
CFSA launched the financial literacy campaign last fall at Jackson State University in Mississippi, along with the National Conference of Black Mayors, which also got money to fund college scholarships. Dora Muhammad, a spokesperson for the NCBM, says that the group no longer works with CFSA. "Once we learned of some of the practices and the impact on the communities, we terminated that relationship," she says.
In addition to the consumer education campaign, CFSA announced that it would partner with the National Black Caucus of States Institute, a public policy research center for black state legislators, to "educate African American legislators and community leaders on critical issues regarding consumer credit." CFSA also recently added a new grant program to its offerings through NBCSI.
Kathleen Moore, CFSA's director of partnering and program development, who previously worked at Habitat for Humanity, insists that such outreach programs have nothing to do with politics or generating business for her members. "I do not promote payday lending. This is part of our giving-back agenda," she says. "None of our outreach is targeted at ethnicity."
Critics can be forgiven, however, for suspecting the worst. Last September, Washington DC's City Council was about to vote on a bill that would cap interest rates on payday loans at 24 percent, effectively banning the practice. CFSA scheduled one of its "Youth Learn & Save" rallies days before the vote. With promises of free food, a rap DJ, and an appearance by Kelvin Boston, the African American host of the PBS show Moneywise, CFSA had gotten several public high schools to let kids out of school for a field trip to a local Boys & Girls Club for a full day of financial literacy training conducted by some of the area's payday lenders. CFSA had also promised to donate $10,000 to expand a Boys & Girls Club financial literacy program at one of the city's poorest, all-black high schools, and to give $100 savings bonds to all the participants. When the DC school chancellor Michelle Rhee got wind of the event, which had not been officially sanctioned, she pulled the plug on it just before it was supposed to take place.
CFSA's Moore, who organized the event, blames the cancellation on industry opponents at the Center for Responsible Lending, who she claims threatened to picket outside. She said CFSA decided to cancel the event rather than endanger the children. "We really did not want young people to be exposed to this ugliness," she says. "It's sad that they would put children in harm's way for a political point."
Moore, who says her group had already spent $40,000 on the rally when it was cancelled, claims that it had nothing to do with the council vote. Did she know about the vote? "Of course I did!" she says, but insists that the DC rally was simply part of the industry's larger community outreach efforts. DC council member Mary Cheh, an original sponsor of the payday bill, isn't buying it. "We're not fools. The timing was exactly right for them to carry on their political campaign," she says.
In the run-up to the DC Council vote on payday lending, the industry continued to reach out to local black organizations. Check 'n Go, a major payday lender, donated a whopping $100,000 to the Anacostia Economic Development Corp., to help minority entrepreneurs. The group is headquartered in the ward of former mayor and now council member Marion Barry, who had been one of the original cosponsors of the payday lending bill. Barry ended up as the lone vote against his own bill, which passed 12-to-1.
Not everyone in the civil rights establishment has signed on with the payday lenders. The NAACP has been active in fighting the industry. In 2003, NAACP chairman Julian Bond told a Utah newspaper, "A drive through any low-income neighborhood clearly indicates people of color are a target market for legalized extortion. Visits to payday stores—which open their doors in low-income neighborhoods at a rate equal to Starbucks opening in affluent ones—are threatening the livelihoods of hardworking families and stripping equity from entire communities." But Corbett says that the industry has succeeded in diluting the black community's response to predatory lending. "Their strategy is to divide and conquer," he says. "If you've picked off Al Sharpton, you've won."
Photo from flickr user pagedooley used under a Creative Commons license.
Stephanie Mencimer is a reporter in Mother Jones' Washington, DC, bureau and the author of Blocking the Courthouse Door: How the Republican Party and Its Corporate Allies Are Taking Away Your Right to Sue (Free Press, 2006).
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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I have had this card for years now and have never been a problem customer, in fact, I just paid my balance in full ($1,425) a few weeks ago.
I went to charge a Christmas gift on my card today and it was declined.
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I spoke with a colleague and she said her account is always paid in full (monthly) and she was declined at the grocery store yesterday using her Frontier Mastercard. She called Barclays and they said the put a hold on her card because they had charged a camera on it the day before (Christmas Gift). She said they have NEVER done that before.
A lot of us here in my office have a Frontier Mastercard and we are now worried that Barclays is not doing well - maybe going bankrupt, given the current economic situation.