Payday lending is just a gentle term for loan sharking. Payday lenders give signature loans to people against future paychecks, locking them in with incredibly high interest rates. Missouri's laws are some of the most lax on the books.

According to a Missouri Better Business Bureau study (PDF) published in 2009, Missouri's state laws allow interest rates of 1950 percent to be charged on a two-week loan of $100.00, while most neighboring states' laws limit those rates to around 400 percent, which is not wonderful, but not as obviously impossible as Missouri's.

A report published by National Public Action this month has even more devastating details of the effects of this type of predatory lending, and link payday lenders to big banks' profits:

• Payday lenders take at the very least $3.4 billion from our communities every year in fees alone. This figure represents some $3.1 billion in wealth stripped from desperate borrowers -money that could have gone to buy needed groceries or school supplies- to pump up the payday lenders' fat bottom lines.
• Nationwide, revenues for the major payday loan companies (Advance America, EZ Corp, First Cash Financial, Dollar Financial, Cash America, QC Holdings) have risen to their highest level - $1.48 Billion per year- more than before the financial crisis.
• Big banks like Bank of America, Wells Fargo, JPMorgan Chase, and US Bank finance approximately 42% of the entire payday loan industry, providing the industry the capital for usurious and predatory loans.

[Full report - PDF]

Needless to say, the CFPB could not be investigating these loan sharks any sooner, particularly when they prey upon the working poor who are already struggling. These types of loans are typically targeted at minority communities, but also military families and other struggling groups. But while the CFPB investigation continues, a coalition of churches, bankers and nonprofits are working to create an alternative around a microlending model. In addition, petitions are being circulated for voter initiatives to limit interest rates on payday loans to more - ahem - reasonable rates.

Continue reading »

Barney Frank is weakening the administration's proposed regulation of predatory lending because, well, the conservative Blue Dogs won't go along with the original version. The industry, of course, is taking that as encouragement, and they're pushing for an amendment that would neuter state consumer protection laws:

He would also drop language requiring providers to adhere to a “reasonableness” standard in offering products; in other words, financial institutions would have been required to asses whether there products were clearly understandable to consumers. That language was seen as too vague and would leave providers open to legal challenges.

The Administration is willing to go along. In an appearance Sept. 23 before Frank’s committee, Treasury Secretary Timothy Geithner acknowledged some of the criticism of the Administration’s proposals and called Frank’s proposed changes, “a pragmatic helpful way to make sure you have the choice for protection.”

“There are lots of different ways to make sure that you don’t create too much unbridled authority that would be damaging to what’s an important part of our financial system,” Geithner said, according to the Associated Press.

Frank is also seeking to clarify just who would be regulated by the new agency, to address complaints by the US Chamber of Commerce that every small business that provides credit to its customers, or the service providers such as CPAs or advertisers who work for them, would be regulated by the new agency. Administration sources from economics chief Larry Summers on down have dismissed those criticisms as nothing more than “scare tactics” but they have nonetheless been effective. In an effort to eliminate that confusion and take it off the table as an issue, Frank will propose language that clarifies that many such businesses will not be included in the new agency’s mandate. Only bona fide providers of consumer finance offerings will be included.

In proposing the changes, Frank is “bowing to political reality” says Howard Glaser, a former top lobbyist for the Mortgage Bankers Association who now runs his own firm. In a note to clients, he points out that the Administration’s proposal was running into trouble with conservative Blue Dog Democrats.

They appear to have raised many of the concerns that have been voiced by the financial services industry and its allies at the US Chamber of Commerce, who have been lobbying heavily against the plan for the last couple of months. They argue that the proposed agency would cut back on the availability of credit, discourage innovation, and tie up many banks and small businesses in a new web of regulation. The Chamber and the community bankers have been taking the lead in fighting off the Administration’s proposal, since small business folk and local bankers who serve them win far more sympathy than do big banks and mortgage brokers at the moment.

Not that Frank’s moves are likely to slow them down. Even amidst news reports this AM that Frank was pulling back on the proposal, the Chamber announced a press conference for tomorrow morning once again criticizing the agency and how it would hurt small business.

He opens up today by lying. I can think of a better phrase: "predatory lending."

The housing market corrected for a reason and it had something to do with mortgages....

Use as an Open thread on the hearing...