Predatory
Lending and Interest Rates
By Albert B. Kelly
I don’t know if you’ve
been following the news, but over the past couple of weeks the news on loans
and predatory lending has not been good for regular folks. While there have
been some stories and even a few editorials about new rules and changes, most
people remain unaware of what’s happening.
Yet these changes, taking
place far away in the halls of Congress and in State Houses across the nation
will have a big impact on a lot of people throughout Cumberland County and our
region. The changes impact people with lower credit scores, the poor and
military members.
According to a recent
story in the New York Times by Michael Corkey, legislatures in a number of
states over the last 2 years have voted to increase fees and interest rates
that lenders can charge for certain “personal loans” used by many lower income
borrowers.
Of course the term
“personal loan” sounds sanitized and harmless; often we’re talking about people
trying to pull together enough money to get a car repaired, pay a medical bill
or deal with some other pressing crisis in their lives.
Understand that back in
2009, when the economy was imploding and Congress and the President were responding
to public outrage over the behavior of the big banks, subprime lenders and Wall
Street, the whole consumer loan industry had been trying to “make nice” to
avoid the wrath of lawmakers.
But now that the immediate
crisis has passed, the big banks, Wall Street, and the consumer loan industry
is trying to peel back regulations put in place to protect borrowers from being
exploited because they want to make more profit from working class Americans.
What does making more
profit look like you ask? According to the Times article lenders can now charge
30% interest on the first $4,000 of a loan and 24% on the next $4,000. Under
the old law, lenders could charge 30% interest on loans up to $1,000 and 18% on
a remaining balance of $6,500.
A recent Times editorial
talked about the impact on members of the military and efforts of the loan
industry to peel back protections in the 2007 Military Lending Act designed to
protect service members. One South Carolina lender gave a soldier a $1,615
title loan on a 13 year-old car and charged $15,613 in interest (400%).
Military leaders have
described the problem of predatory lending as a national security issue; one
that can turn members of the military into security risks, destroy morale and
play havoc with our soldiers. That our fellow countryman serving in the
military should be exploited in this way is shameful.
But it is also shameful to
know that banks and lenders bleed the poor, the less wealthy, and the lower
middle classes through fees and interest rates just south of loan shark
territory for the sake of profit margins and happy shareholders.
In fact, lenders argue
that interest rate caps had not kept pace with inflation and the increased
costs of doing business; as if they were doing us all a favor by lending to us
at these rates. I understand free markets and pricing in risk, but government
has to set some rules of the road.
It’s hard to argue that
those at the bottom or on the margins need to pull themselves up by their
bootstraps when those bootstraps are so expensive. One crisis leads to a loan
with outrageous interest rates-the borrower has trouble paying- they rollover
the debt with more interest and it keeps going. They get buried by the interest
and they never get out of the cycle. There’s a lot of money to be made off of
those on the margins, but there’s a point where it’s just wrong and not in the
country’s long-term interests.
If there’s a reason to
register and turn out on Election Day, this might be it. The big banks, Wall
Street, and the consumer loan industry can afford to pay lobbyists to press
their case. The rest of us can’t afford a lobbyist but we do have one big
bullet in our arsenal to fire and it’s called a vote.
That’s how you make your
voice heard; voting is what you can do to make sure that the laws and
regulations don’t just benefit a small group at the top at expense of everyone
else. That’s why you show up for primaries and general elections; not just in
presidential years, but every year. If we don’t, we’ll pay for it in ways we
never imagined.