Payday lenders: “We are not providers of funds! “
“How do you spell your name?” the woman on the device asked, looking at her laptop in the lobby of a lavish resort in Southern California. Was she looking for me on Google? I tried not to panic. Instead, playing on the jet lag, I joked that I really knew my name by heart and gave her one of my business cards stating that I was a consultant. Then I realized she was typing my name to put it on my badge. Casually, she handed me my lanyard, diary, and bag of loot.
I was in it!
Why are journalists banned from attending the Community Financial Services Association of America (CFSA) annual conference? Why the whole secret? The organization says full disclosure and transparency are among its best practices, but no media or streaming is allowed during its annual shindig. This is a $ 46 billion industry based on sub-prime clients (they now call it non-prime) – what are their meetings like? Not long ago I went to the La Costa Resort and Spa in Carlsbad to investigate. Ever since I said I was a consultant, I have told people that I was here for “research”. My line was that I was taking the industry temperature.
There must be a good reason they are afraid of journalists.
On the first day of the signs, I was scanning the breakfast buffet for members of Congress before piling into a banquet hall. The crowd inside was part two-for-one Jos. A. Bank and partly Herbalife educational seminar. All business.
Following the national anthem, there was a video featuring Missouri Congressman Blaine Luetkemeyer congratulating CASA on its 15th anniversary. (Luetkemeyer’s name didn’t appear anywhere on the schedule, print materials, or app.) After strewing his address with the phrase “federal bureaucrats” and complaining about who should be fired at the Justice Department for his Operation Choke Point initiative, he concluded with: “We want to work with you and make sure it doesn’t hurt you.”
Industry spent over $ 13 million on lobbying and campaign contributions in the 2014 election cycle. In Washington, payday lenders are treated like a mistress you say you’ll leave your wife – but not go out in public.
“Some people call us bottom feeders, payday loans sharks and parasites, but we are a legal business! This was the hackneyed message sent to attendees by various attendees. It was less informative than an exercise in cognitive dissonance. Group therapy for the cursed with a conscience.
Why are payday lenders hated? Mainly because they have managed to squeeze $ 46 billion a year out of an anemic class of underrepresented and marginalized human beings. All the great religions of the world agree on two things: the golden rule is right and usury is bad. In the modern world, we live (and die) on credit, but we are still repelled by predatory loans.
Payday lenders are offering Faustian deals to the desperate. You will pay a “legitimate businessman” $ 400 for that $ 100 repair on your mid-90s neon. With the rollover options, some borrowers have paid up to 1000% of the APR. We tend to hate people who see crippling abject poverty and think, “How can I make money with this? Because it’s not so much a cycle of debt, which is arguably a mortgage, for the bottom of the economic ladder – it’s a thousand fold debt.
Only Congress or state legislatures can implement APR limits for loans. These lenders, who also call themselves “advanced” to circumvent certain state laws, have repeatedly and publicly shouted, “We cannot stay in business with a 30% APR cap! This literally means that if they don’t rip people off, they will go broke. In short, their business is scamming people. They shout “Persecution! To any regulation, but tout their legal status granted by regulation as a badge of legitimacy.
What is clear is that the payday lenders want us to see them as victims of the Big Meanie government. Operation Choke Point was a DOJ directive to banks to beware of the reputational risk of tobacco, ammunition, and payday lenders. In a bizarre and deaf campaign called the Faces of Operation Choke Point, owners of closed businesses have complained and in some cases cried over their plight.
“I thought our country’s promise was to support all of us, especially small businesses, and the right to do legal things,” says Allison Deguisne, Orange County payday lender, in an online video.
In the Operation Choke Point panel, one participant shook his fist, demanding that someone at the DOJ lose their job: “Heads are going to fall!” “
Then, privately over happy hour whiskeys, a finance official confessed to me that Operation Choke Point had eliminated a lot of bad actors when it was deployed two years ago. It has improved the industry, he said. And this is an area of some very shady practices. The Hydra group, for example, in 2014, was dismantled by making money scams, according to a complaint. Hydra transferred money to clients’ accounts and then extracted the charges. “There are bad apples in all industries,” was the cocktail’s pivot to the next topic.
If the CFSA’s goal is to legitimize payday lenders, then the DOJ has apparently done a better job of weeding out particularly egregious players. This admission was such a stunning reversal of everything that had been said on the podium, I had to ask around and see if the CFO wasn’t just some outlier going against the grain. Yes, an industry lawyer confirmed, Operation Choke Point killed lenders who needed to be killed.
The other point of discussion is that there is a real need for the product from the lenders. It is estimated that there are 68 million Americans who do not have a bank account. Payday lenders see themselves as the only thing between the desperate and the real criminals who would take advantage of them.
“If you have a better idea, then show us!” I’ll be the first to kiss it! CASA President Dennis Shaul said in one of his many speeches at the conference.
Elizabeth Warren launched the idea of the post again offer short term loans to a cap of 30 percent APR. In California, Governor Jerry Brown just signed a bill allowing nonprofits to make small, interest-free loans of up to $ 2,500 without onerous regulation. There are alternatives to deceive the poor. Like not to deceive the poor.
What I take away from breaking bread and witticisms with payday lenders for 72 hours is that this industry thrives in a bubble of bromides of bad shame (aka “personal liability”) and legal maneuvering. It must be a fun place to be a lawyer, great to be a lender, and a depressing place to be a client.
photo by Steve rhodes