Some local bloggers have been covering the issue of “payday lending” and associated businesses in the last few days, and to no surprise, it’s an issue that strikes a chord with many. Rep. John Parker tried to do something about it during the last legislative session, but the House Business and Labor Committee let it die in their hands.
The Wall Street Journal (of all places!) recently ran a very critical expose on the industry that used a Billings man to put a face to the kinds of practices these outfits perform:
Oliver Hummel, a Billings, Mont., resident with schizophrenia, lived on the $1,013 a month in Social Security disability benefits he received by direct deposit to his bank account. Early last year, after his car broke down and his 13-year-old terrier racked up a big vet bill, Mr. Hummel borrowed $200 from a local lender.
Like many payday borrowers, Mr. Hummel realized he couldn’t pay off the loan when it was due so he went to another “payday” lender. Lenders rarely ask about other loans and debt, and borrowers often take out multiple loans in an effort to avoid defaulting. By February, Mr. Hummel had eight loans from eight lenders, at effective annual interest rates that ranged from 180% to 406%.
One particularly heinous practice the WSJ piece cites is the industry’s targeting of low income people on fixed incomes from the government such as military families and Social Security recipients. The lenders then partner with local banks who arrange to have these borrowers’ federal checks direct deposited to the bank and then immediately transfered to the payday lender–thus circumventing law surrounding this practice. The piece even included interviews with several customers who had tried to cancel these arrangements after having problems getting their remaining money from the lenders, only to have the banks resubmit their original applications.
While I’d personally support state law calling for the outright banning of these usurers, a more feasible approach for the next session would be to take another crack at a bill like Rep. Parker’s HB 29 from last time. I’ll be crossing my fingers that spines in the House Business and Labor Committee have thickened a bit since then.
1 response so far ↓
1 problembear // Jun 19, 2008 at 7:19 pm
pay day loans and vehicle title loans will never be banned. Not as long as we have pawn-brokers. But I do think that government needs to step in- and quickly before more damage is done. What is proposed is to invite fair minded legislators of all political persuasion in the state of Montana to hammer out some legislation that regulates this so that the most shameful practices of these lenders can be brought under control. failing that, I think non-profit entrepeneurs should find ways to compete against these jackals so that people can get help when they need it but at rates that will harm them as little as possible.
I prefer government control but I am not afraid of competing against diabolical slime devils.
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